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File: Chapter 06 - Variable Interest Entities, Intra-Entity Debt, Consolidated Cash Flows,
and Other Issues
Multiple Choice:
[QUESTION]
1. On January 1, 2018, Riley Corp. acquired some of the outstanding bonds of one of its
subsidiaries. The bonds had a carrying value of $421,620, and Riley paid $401,937 for them.
How should you account for the difference between the carrying value and the purchase price in
the consolidated financial statements for 2018?
A) The difference is added to the carrying value of the debt.
B) The difference is deducted from the carrying value of the debt.
C) The difference is treated as a loss from the extinguishment of the debt.
D) The difference is treated as a gain from the extinguishment of the debt.
E) The difference does not influence the consolidated financial statements.
Answer: D
Learning Objective: 06-03
Topic: Intra-entity debt―Gain or loss for consolidation
Difficulty: 1 Easy
Blooms: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
[QUESTION]
2. Regency Corp. recently acquired $500,000 of the bonds of Safire Co., one of its subsidiaries,
paying more than the carrying value of the bonds. According to the most practical view of this
intra-entity transaction, to whom should the loss be attributed?
A) To Safire because the bonds were issued by Safire.
B) The loss should be allocated between Safire and Regency based on the purchase price and the
original face value of the debt.
C) The loss should be amortized over the life of the bonds and need not be attributed to either
party.
D) The loss should be deferred until it can be determined to whom the attribution can be made.
E) To Regency because Regency is the controlling party in the business combination.
Answer: E
Topic: Intra-entity debt transactions―General
Difficulty: 1 Easy
Blooms: Understand
[QUESTION]
3. Which one of the following characteristics of preferred stock would make the stock a dilutive
security for purposes of calculating earnings per share?
A) The preferred stock is callable.
B) The preferred stock is convertible.
C) The preferred stock is cumulative.
D) The preferred stock is noncumulative.
Copyright © 2018 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Page 6-1
E) The preferred stock is participating.
Answer: B
Topic: EPS―Consolidated diluted EPS
Topic: EPS―EPS of subsidiary by itself
Difficulty: 1 Easy
Blooms: Remember
[QUESTION]
4. Where do dividends paid to the noncontrolling interest of a subsidiary appear on a
consolidated statement of cash flows?
A) Cash flows from operating activities.
B) Cash flows from investing activities.
C) Cash flows from financing activities.
D) Supplemental schedule of noncash investing and financing activities.
E) They do not appear in the consolidated statement of cash flows.
Answer: C
Topic: Consolidated statement of cash flows
Difficulty: 1 Easy
Blooms: Remember
[QUESTION]
5. Where do dividends paid by a subsidiary to the parent company appear in a consolidated
statement of cash flows?
A) Cash flows from operating activities.
B) Cash flows from investing activities.
C) Cash flows from financing activities.
D) Supplemental schedule of noncash investing and financing activities.
E) They do not appear in the consolidated statement of cash flows.
Answer: E
Difficulty: 1 Easy
Blooms: Remember
[QUESTION]
6. Where do intra-entity transfers of inventory appear in a consolidated statement of cash flows?
A) They do not appear in the consolidated statement of cash flows.
B) Supplemental schedule of noncash investing and financing activities.
C) Cash flows from operating activities.
D) Cash flows from investing activities.
Page 6-2
E) Cash flows from financing activities.
Answer: A
Difficulty: 1 Easy
Blooms: Understand
[QUESTION]
7. How do intra-entity transfers of inventory affect the preparation of a consolidated statement of
cash flows?
A) They must be added in calculating cash flows from investing activities.
B) They must be deducted in calculating cash flows from investing activities.
C) They must be added in calculating cash flows from operating activities.
D) Because the consolidated balance sheet and income statement are used in preparing the
consolidated statement of cash flows, no special elimination is required.
E) They must be deducted in calculating cash flows from operating activities.
Answer: D
Difficulty: 1 Easy
Blooms: Understand
[QUESTION]
8. How would consolidated earnings per share be calculated if the subsidiary has no convertible
securities or warrants?
A) Parent's earnings per share plus subsidiary's earnings per share.
B) Parent's net income divided by parent's number of shares outstanding.
C) Consolidated net income divided by parent's number of shares outstanding.
D) Average of parent's earnings per share and subsidiary's earnings per share.
E) Consolidated income divided by total number of shares outstanding for the parent and
subsidiary.
Answer: C
Topic: EPS―Consolidated basic EPS
Difficulty: 1 Easy
Blooms: Remember
REFERENCE: 06-01
On January 1, 2018, Riney Co. owned 80% of the common stock of Garvin Co. On that date,
Garvin's stockholders' equity accounts had the following balances:

Page 6-3
Common stock ($5 par value) $ 250,000
Additional paid-in capital 110,000
Retained earnings 330,000
Total stockholders’ equity $ 690,000
The balance in Riney's Investment in Garvin Co. account was $552,000, and the noncontrolling
interest was $138,000. On January 1, 2018, Garvin Co. sold 10,000 shares of previously unissued
common stock for $15 per share. Riney did not acquire any of these shares.
[QUESTION]
REFER TO: 06-01
9. What is the balance in Riney’s “Investment in Garvin Co. Account” following the sale of the
10,000 shares of common stock?
A) $552,000.
B) $560,000.
C) $460,000.
D) $404,000.
E) $672,000.
Answer: B
Topic: Subsidiary stock―New issue-Percentage change
Difficulty: 2 Medium
Blooms: Apply
AACSB: Knowledge Application
Feedback: $250,000 / $5 = 50,000 shares × .80 = 40,000 shares owned by parent
Total Equity at Acquisition = $690,000 + Equity Added by Stock Offering (10,000 × $15)
$150,000 = Total Equity after Stock Offering $840,000 × 40,000 Parent / 60,000 Total =
$560,000 Parent’s Investment Account
[QUESTION]
REFER TO: 06-01
10. What amount should be attributed to the Noncontrolling Interest in Garvin Co. following the
sale of the 10,000 shares of common stock?
A) $288,000.
B) $101,000.
C) $280,000.
D) $230,000.
E) $168,000.
Answer: C
Blooms: Apply
Feedback: $250,000 / $5 = 50,000 shares × .80 = 40,000 shares owned by parent
Page 6-4
Total Equity at Acquisition = $690,000 + Equity Added by Stock Offering (10,000 × $15)
$150,000 = Total Equity after Stock Offering $840,000 × 20,000/60,000 = $280,000
Noncontrolling Interest
[QUESTION]
11. Rojas Co. owned 7,000 shares (70%) of the outstanding 10%, $100 par, preferred stock and
60% of the outstanding common stock of Brett Co. Assuming there are no excess amortizations
or intra-entity transactions, and Brett reports net income of $780,000, what is the noncontrolling
interest in the subsidiary's income?
A) $234,000.
B) $273,000.
C) $302,000.
D) $312,000.
E) $284,000.
Answer: C
Topic: Subsidiary preferred stock
Difficulty: 3 Hard
Blooms: Apply
Feedback: $780,000 Net Income – Preferred Dividends (10,000 × $10) = $680,000 × .40 =
$272,000 Noncontrolling Interest
$100,000 Preferred Dividends × .30 = $30,000 Noncontrolling Interest
$272,000 from Income + $30,000 Preferred Dividends = $302,000 Noncontrolling Interest in
Income
REFERENCE: 06-02
Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par
value common stock and 2,000 shares of preferred stock outstanding. Each preferred share
received an annual per share dividend of $2 and is convertible into four shares of common stock.
Knight did not own any of Stoop's preferred stock. Stoop also had 600 bonds outstanding, each
of which is convertible into ten shares of common stock. Stoop's annual after-tax interest
expense for the bonds was $2,000. Knight did not own any of Stoop's bonds. There are no
excess amortizations or intra-entity transactions associated with this consolidation. Stoop reported
net income of $300,000 for 2018. Knight has 100,000 shares of common stock outstanding and
reported net income of $400,000 for 2018.
[QUESTION]
REFER TO: 06-02
12. What would Knight Co. report as consolidated basic earnings per share (rounded)?
A) $6.37
B) $6.40
C) $7.00
D) $5.68
E) $6.00
Answer: A
Topic: EPS―Subsidiary earnings for consolidated EPS
Difficulty: 3 Hard
Page 6-5
Blooms: Apply
Feedback: Sub net income (300,000) – preferred divs(4,000) = $296,000 x 80% = 236,800
included in consolidated EPS. Parent net income (400,000)+ portion of sub net income =
(400,000 + 236,800) / 100,000 shares = $6.37
[QUESTION]
REFER TO: 06-02
13. What would Knight Co. report as consolidated diluted earnings per share (rounded)?
A) $4.00.
B) $. 4.71
C) $8.71.
D) $5.89.
E) $6.37.
Answer: D
Topic: EPS―EPS of subsidiary by itself
Difficulty: 3 Hard
Blooms: Apply
Feedback: Sub Net income $300,000 + Interest saved $2,000 (no preferred divs)=
$322,000. New ownership percentage = 40,000 / (50,000 + if-converted preferred shares
8,000 + if-converted bonds 6,000 shares) = 62.5%. Consolidated DEPS = 400,000 +
(62.5% x 302,000) = 588,750/100,000 = $5.89 Knight Co.’s Consolidated Diluted
Earnings per Share
[QUESTION]
14. Campbell Inc. owned all of Gordon Corp. For 2018, Campbell reported net income (without
consideration of its investment in Gordon) of $280,000 while the subsidiary reported $112,000.
There are no excess amortizations associated with this consolidation. The subsidiary had bonds
payable outstanding on January 1, 2018, with a book value of $297,000. The parent acquired the
bonds on that date for $281,000. During 2018, Campbell reported interest income of $31,000
while Gordon reported interest expense of $29,000. What is consolidated net income for 2018?
A) $406,000.
B) $374,000.
C) $378,000.
D) $410,000.
E) $394,000.
Answer: A
Topic: Intra-entity debt―Effect on consolidated balances
Blooms: Apply

Page 6-6
Feedback: Income of the Parent $280,000 + Income of the Sub $112,000 – Difference in
Interest Income over Interest Expense on Intra-Entity Bonds ($31,000 - $29,000) $2,000
+ Gain on Bonds Purchase ($297,000 - $281,000) $16,000 = $406,000 Consolidated Net
Income
[QUESTION]
15. Vontkins Inc. owned all of Quasimota Co. The subsidiary had bonds payable outstanding on
January 1, 2017, with a book value of $265,000. The parent acquired the bonds on that date for
$288,000. Subsequently, Vontkins reported interest income of $25,000 in 2017 while Quasimota
reported interest expense of $29,000. Consolidated financial statements were prepared for 2018.
What adjustment would be required for the retained earnings balance as of January 1, 2018?
A) Reduction of $27,000.
B) Reduction of $4,000.
C) Reduction of $19,000.
D) Reduction of $30,000.
E) Reduction of $20,000.
Answer: C
Blooms: Apply
Feedback: Bond Acquisition Price $288,000 – Bonds carrying amount $265,000 = $23,000 R/E
Reduction.
Intra-Entity Interest $29,000 - $25,000 = $4,000 R/E Increase
$23,000 - $4,000 = $19,000 R/E Reduction
[QUESTION]
16. Tray Co. reported current earnings of $560,000 while paying $56,000 in cash dividends.
Sparrish Co. earned $140,000 in net income and distributed $14,000 in dividends. Tray held a
70% interest in Sparrish for several years, an investment that it originally acquired by transferring
consideration equal to the book value of the underlying net assets. Tray used the initial value
method to account for these shares.
On January 1, 2018, Sparrish acquired in the open market $70,000 of Tray's 8% bonds. The
bonds had originally been issued several years ago at a price that would yield a 10% effective
interest rate. On the date of the bond purchase, the book value of the bonds payable was $67,600.
Sparrish paid $65,200 based on a 12% effective interest rate over the remaining life of the bonds.
What is the noncontrolling interest's share of the subsidiary's net income?
A) $42,000.
B) $37,800.
C) $39,600.
D) $40,070.
E) $44,080.
Answer: A
Blooms: Apply

Page 6-7
Feedback: Sub’s income $140,000 × .30 = $42,000 NCI’s Portion of Income (gain or loss
is assigned to the parent only)
[QUESTION]
17. A company had common stock with a total par value of $18,000,000 and fair value of
$62,000,000; and 7% preferred stock with a total par value of $6,000,000 and a fair value of
$8,000,000. The book value of the company was $85,000,000. Assuming ninety percent (90%)
of the company’s total equity is acquired, what amount must be attributed to the noncontrolling
interest?
A) $8,500,000.
B) $7,000,000.
C) $6,200,000.
D) $2,400,000.
E) $6,929,400.
Answer: B
Difficulty: 1 Easy
Blooms: Apply
Feedback: FV Common Stock $62,000,000 + FV Preferred Stock $8,000,000 =
$70,000,000 × .10 = $7,000,000 Noncontrolling Interest
[QUESTION]
18. Cadion Co. owned a controlling interest in Knieval Inc. Cadion reported sales of $420,000
during 2018 while Knieval reported $280,000. Inventory costing $28,000 was transferred from
Knieval to Cadion (upstream) during the year for $56,000. Of this amount, twenty-five percent
was still in ending inventory at year's end. Total receivables on the consolidated balance sheet
were $112,000 at the first of the year and $154,000 at year-end. No intra-entity debt existed at
the beginning or ending of the year. Using the direct approach, what is the consolidated amount
of cash collected by the business from its customers?
A) $602,000.
B) $644,000.
C) $686,000.
D) $714,000.
E) $592,000.
Answer: A
Blooms: Apply

Page 6-8
Feedback: Parent’s Sales $420,000 + Sub’s Sales $280,000 – Intra-Entity Sales $56,000 –
increase in A/R $42,000 ($154,000 - $112,000) = $602,000 Consolidated Cash Collected
[QUESTION]
19. Parker owned all of Odom Inc. Although the Investment in Odom Inc. account had a balance
of $834,000, the subsidiary's 12,000 shares had an underlying book value of only $56 per share.
On January 1, 2018, Odom issued 3,000 new shares to the public for $70 per share. How does
this transaction affect the Investment in Odom Inc. account?
A) It should be decreased by $210,000.
B) It should be increased by $210,000.
C) It should be increased by $168,000.
D) It should be decreased by $1,200.
E) It is not affected since the shares were sold to outside parties.
Answer: D
Blooms: Apply
Feedback:
Subsidiary’s unamortized fair value of prior to new share issue
(12,000 × $56) ....................................................... $834,000
Parent's ownership ................................................... 100%
Unamortized subsidiary fair value .......................... $834,000
Subsidiary unamortized fair value after issuing new

shares (above value plus 3,000 shares at $70 each) $1,044,000
Parent's ownership 12,000 ÷ 15,000 shares) ........... 80%
Unamortized subsidiary fair value after stock issue $835,200
Investment in Odom increases by $1,200 ($835,200 less $834,000).
REFERENCE: 06-03
These questions are based on the following information and should be viewed as independent
situations.
Popper Co. acquired 80% of the common stock of Cocker Co. on January 1, 2016, when Cocker
had the following stockholders' equity accounts.
Common stock — 40,000 shares outstanding $140,000

Additional paid-in capital 105,000
Total stockholders’ equity $721,000
To acquire this interest in Cocker, Popper paid a total of $682,000 with any excess acquisition
date fair value over book value being allocated to goodwill, which has been measured for

Page 6-9
impairment annually and has not been determined to be impaired as of January 1, 2019.
Popper did not pay any premium when it acquired its original interest in Cocker. On January 1,
2019, Cocker reported a net book value of $1,113,000 before the following transactions were
conducted. Popper uses the equity method to account for its investment in Cocker, thereby
reflecting the change in book value of Cocker.
[QUESTION]
REFER TO: 06-03
20. On January 1, 2019, Cocker issued 10,000 additional shares of common stock for $35 per
share. Popper acquired 8,000 of these shares. How would this transaction affect the additional
paid-in capital of the parent company?
A) Increase it by $28,700.
B) Increase it by $16,800.
C) $0.
D) Increase it by $280,000.
E) Increase it by $593,600.
Answer: C
Topic: Subsidiary stock―New issue-No percentage change
Difficulty: 1 Easy
Blooms: Apply
Feedback: No Adjustment is made to the APIC of the Parent as a Result of Sub’s Stock
Issue because the same Level of Ownership Interest is Maintained
[QUESTION]
REFER TO: 06-03
21. On January 1, 2019, Cocker issued 10,000 additional shares of common stock for $21 per
share. Popper did not acquire any of this newly issued stock. How would this transaction affect
the additional paid-in capital of the parent company?
A) $0.
B) Decrease it by $23,240.
C) Decrease it by $68,250.
D) Decrease it by $45,060.
E) Decrease it by $64,720.
Answer: E
Blooms: Apply
Feedback:
Consideration transferred ........................................................ $682,000
Noncontrolling interest acquisition-date fair value ............... 170,500
Increase in Sub book value (1,113,000-721,000) ..................... 392,000
Stock issue proceeds ................................................................ 210,000

Page 6-10
Subsidiary valuation basis ............................................................. 1,454,000
New parent ownership (32,000 shs. ÷ 50,000 shs.) ..................... 64%
Parent’s post-stock issue ownership balance.............................. $930,880
Parent's investment account ($682,000 + [80% × 392,000]) ........ 995,600
Required adjustment —decrease ............................................ $(64,720)
[QUESTION]
REFER TO: 06-03
22. On January 1, 2019, Cocker reacquired 8,000 of the outstanding shares of its own common
stock for $34 per share. None of these shares belonged to Popper. How would this transaction
have affected the additional paid-in capital of the parent company?
A) $0.
B) Decrease it by $32,900.
C) Decrease it by $45,700.
D) Decrease it by $23,100.
E) Decrease it by $50,500.
Answer: D
Topic: Subsidiary stock―Treasury stock acquired
Blooms: Apply
Feedback:
Adjusted acquisition-date fair value ($852,500 + $392,000) .................. $1,244,500
Less Stock repurchase ................................................................... $ ( 272,000)
Adjusted fair value after stock repurchase ................................... $972,500
New parent ownership (32,000 shs. ÷ 32,000 shs.) ..................... 100%
Fair value equivalency of parent's ownership ........................ $972,500
Parent's investment account ($682,000 + [80% × 392,000]) ........ 995,600
Required adjustment—decrease .............................................. $ (23,100)
[QUESTION]
23. If new bonds are issued from a parent to its subsidiary, which of the following statements is
false?
A) Any premium or discount on bonds payable is exactly offset by a premium or discount on
bond investment.
B) There will be $0 net gain or loss on the bond transaction.
C) Interest expense needs to be eliminated on the consolidated income statement.
D) Interest revenue needs to be eliminated on the consolidated income statement.
E) A net gain or loss on the bond transaction will be reported.
Answer: E
Blooms: Understand
Page 6-11
[QUESTION]
24. The accounting problems encountered in consolidated intra-entity debt transactions when the
debt is acquired by an affiliate from an outside party include all of the following except:
A) Both the investment and debt accounts have to be eliminated now and for each future
consolidated financial statement despite containing differing balances.
B) Subsequent interest revenue/expense must be removed although these balances fail to agree in
amount.
C) A gain or loss must be recognized by both parent and subsidiary companies.
D) Changes in the investment, debt, interest revenue, and interest expense accounts occur
constantly because of the amortization process.
E) The gain or loss on the retirement of the debt must be recognized by the business combination
in the year the debt is acquired, even though this balance does not appear on the financial records
of either company.
Answer: C
Blooms: Understand
[QUESTION]
25. Which of the following statements is true concerning the acquisition of existing debt of a
consolidated affiliate in the year of the debt acquisition?
A) Recognition of any gain or loss is deferred until the debt is extinguished for purposes of
reporting such debt on consolidated financial statements.
B) Any gain or loss is recognized in the year of acquisition on a consolidated income statement.
C) Interest revenue generated from the debt of an affiliate is recognized on a consolidated income
statement.
D) Interest expense recognized from carrying debt instruments is recognized on a consolidated
income statement.
E) Consolidated retained earnings is adjusted to take into account the difference between the
purchase price and carrying value of the debt.
Answer: B
Blooms: Remember
[QUESTION]
26. Which of the following statements is false regarding the assignment of a gain or loss when an
affiliate’s debt instrument is acquired on the open market?
A) Subsidiary net income is not affected by a gain on the debt transaction.
B) Subsidiary net income is not affected by a loss on the debt transaction.
C) Parent Company net income is not affected by a gain on the debt transaction.
Page 6-12
D) Parent Company net income is not affected by a loss on the debt transaction.
E) Consolidated net income is not affected by a gain or loss on the debt transaction.
Answer: E
Blooms: Remember
[QUESTION]
27. What would differ between a statement of cash flows for a consolidated company and an
unconsolidated company using the indirect method?
A) Parent's dividends would be subtracted as a financing activity.
B) Gain on sale of land would be deducted from net income.
C) Noncontrolling interest in net income of subsidiary would be added to net income.
D) Proceeds from the sale of long-term investments would be added to investing activities.
E) Loss on sale of equipment would be added to net income.
Answer: C
Difficulty: 1 Easy
Blooms: Understand
[QUESTION]
28. Which of the following statements is true for a consolidated statement of cash flows?
A) Parent's dividends and subsidiary's dividends are deducted as a financing activity.
B) Only parent's dividends are deducted as a financing activity.
C) Parent's dividends and its share of subsidiary's dividends are deducted as a financing activity.
D) All of parent's dividends and noncontrolling interest of subsidiary's dividends are deducted as
a financing activity.
E) Neither parent's nor subsidiary's dividends are deducted as a financing activity.
Answer: D
Blooms: Remember
[QUESTION]
29. In reporting consolidated earnings per share when there is a wholly owned subsidiary, which
of the following statements is true?
A) Parent company earnings per share equals consolidated earnings per share when the equity
method is used.
B) Parent company earnings per share is equal to consolidated earnings per share when the initial
Page 6-13
value method is used.
C) Parent company earnings per share is equal to consolidated earnings per share when the partial
equity method is used and acquisition-date fair value exceeds book value.
D) Parent company earnings per share is equal to consolidated earnings per share when the partial
equity method is used and acquisition-date fair value is less than book value.
E) Preferred dividends are not deducted from net income for consolidated earnings per share.
Answer: A
Topic: EPS―Consolidated basic EPS
Blooms: Remember
[QUESTION]
30. A subsidiary issues new shares of common stock at an amount below book value. Outsiders
buy all of these shares. Which of the following statements is true?
A) The parent's additional paid-in capital will be increased.
B) The parent's investment in subsidiary will be increased.
C) The parent's retained earnings will be increased.
D) The parent's additional paid-in capital will be decreased.
E) The parent's retained earnings will be decreased.
Answer: D
Blooms: Analyze
AACSB: Analytical Thinking
[QUESTION]
31. A subsidiary issues new shares of common stock. If the parent acquires all of these shares at
an amount greater than book value, which of the following statements is true?
A) The investment in subsidiary will decrease.
B) Additional paid-in capital will decrease.
C) Retained earnings will increase.
D) The investment in subsidiary will increase.
E) No adjustment will be necessary.
Answer: D
Blooms: Analyze
[QUESTION]
32. If a subsidiary re-acquires its outstanding shares from outside ownership for more than the
Page 6-14
noncontrolling interest valuation basis at the date of buying such treasury stock, which of the
following statements is true?
A) Additional paid-in capital on the parent company’s books will decrease.
B) Investment in subsidiary will increase.
C) Treasury stock on the parent's books will increase.
D) Treasury stock on the parent's books will decrease.
E) No adjustment is necessary.
Answer: A
Topic: Subsidiary stock―Treasury stock acquired
Difficulty: 3 Hard
Blooms: Analyze
[QUESTION]
33. If a subsidiary issues a stock dividend, which of the following statements is true?
A) Investment in subsidiary on the parent's books will increase.
B) Investment in subsidiary on the parent's books will decrease.
C) Additional paid-in capital on the parent's books will increase.
D) Additional paid-in capital on the parent's books will decrease.
E) No adjustment is necessary.
Answer: E
Topic: Subsidiary stock―Stock dividend issued
Blooms: Analyze
[QUESTION]
34. Stevens Company has had bonds payable of $10,000 outstanding for several years. On
January 1, 2018, when there was an unamortized discount of $2,000 and a remaining life of 5
years, its 80% owned subsidiary, Matthews Company, purchased the bonds in the open market
for $11,000. The bonds pay 6% interest annually on December 31. The companies use the
straight-line method to amortize interest revenue and expense. Compute the consolidated gain or
loss on a consolidated income statement for 2018.
A) $1,000 gain.
B) $1,000 loss.
C) $2,000 loss.
D) $3,000 loss.
E) $3,000 gain.
Answer: D
Difficulty: 1 Easy
Blooms: Apply
Page 6-15
Feedback: Bonds Purchase Price $11,000 – Bonds carrying amount ($10,000 - $2,000) =
$3,000 Loss to Consolidation Income
[QUESTION]
35. Keenan Company has had bonds payable of $20,000 outstanding for several years. On
January 1, 2018, there was an unamortized premium of $2,000 with a remaining life of 10 years,
Keenan's parent, Ross, Inc., purchased the bonds in the open market for $19,000. Keenan is a
90% owned subsidiary of Ross. The bonds pay 8% interest annually on December 31. The
companies use the straight-line method to amortize interest revenue and expense. Compute the
consolidated gain or loss on a consolidated income statement for 2018.
A) $3,000 gain.
B) $3,000 loss.
C) $1,000 gain.
D) $1,000 loss.
E) $2,000 gain.
Answer: A
Difficulty: 1 Easy
Blooms: Apply
Feedback: Bonds Purchase Price $19,000 – Bonds carrying amount ($20,000 + $2,000) =
$3,000 Gain to Consolidation Income
REFERENCE: 06-04
On January 1, 2018, Nichols Company acquired 80% of Smith Company's common stock and
40% of its non-voting, cumulative preferred stock. The consideration transferred by Nichols was
$1,200,000 for the common and $124,000 for the preferred. There was no premium in the value
of consideration transferred. Any excess acquisition-date fair value over book value is considered
goodwill. The capital structure of Smith immediately prior to the acquisition is:
Common stock, $10 par value (50,000 shares outstanding) $500,000

Preferred stock, 6% cumulative, $100 par value,
3,000 shares outstanding 300,000
Additional paid in capital 200,000
Total stockholders’ equity $1,500,000
[QUESTION]
REFER TO: 06-04
36. With respect to Nichols’ investment in Smith, determine the amount to be recorded and
identify which account should be adjusted to reflect such amount.
A) $1,324,000 for Investment in Smith.
B) $1,200,000 for Investment in Smith.
C) $1,200,000 for Investment in Smith’s Common Stock and $124,000 for Investment in Smith’s
Page 6-16
Preferred Stock.
D) $1,200,000 for Investment in Smith’s Common Stock and $120,000 for Investment in Smith’s
Preferred Stock.
E) $1,448,000 for Investment in Smith’s Common Stock.
Answer: C
Blooms: Apply
Feedback: FV of Consideration Recorded for Each Class of Stock in the Investment
Account
[QUESTION]
REFER TO: 06-04
37. Compute the goodwill recognized in consolidation.
A) $ 800,000.
B) $ 310,000.
C) $ 124,000.
D) $ 0.
E) $(196,000.)
Answer: B
Blooms: Apply
Feedback: 100% acquisition-date fair value: 100% Common Stock ($1,200,000 / .80 =
$1,500,000) + 100% Preferred Stock ($124,000 / .40 = $310,000): Total acquisition-date
fair value $1,500,000 + $310,000 = FV $1,810,000 – BV $1,500,000 = $310,000
Goodwill
[QUESTION]
REFER TO: 06-04
38. Compute the noncontrolling interest in Smith at date of acquisition.
A) $486,000.
B) $480,000.
C) $300,000.
D) $150,000.
E) $120,000.
Answer: A
Blooms: Apply

Page 6-17
Feedback: Common Stock Noncontrolling Interest at Acquisition = $1,200,000 / .80 = $1,500,000
× .20 = $300,000
Preferred Stock Noncontrolling Interest at Acquisition = $124,000 / .40 = $310,000 × .60 =
$186,000
$300,000 + $186,000 = $486,000 Noncontrolling Interest at Acquisition Date
[QUESTION]
REFER TO: 06-04
39. The consolidation entry at date of acquisition will include (referring to Smith):
A) Debit Common stock $500,000 and debit Preferred stock $120,000.
B) Debit Common stock $400,000 and debit Additional paid-in capital $160,000.
C) Debit Common stock $500,000 and debit Preferred stock $300,000.
D) Debit Common stock $500,000, debit Preferred stock $120,000, and debit Additional paid-in
capital $200,000.
E) Debit Common stock $400,000, debit Preferred stock $300,000, debit Additional paid-in
capital $200,000, and debit Retained earnings $500,000.
Answer: C
Blooms: Apply
Feedback: BV is Debited in Consolidation Entry for Acquisition-Date Preparation of
Consolidated Balance Sheet
[QUESTION]
REFER TO: 06-04
40. If Smith’s net income is $100,000 in the year following the acquisition,
A) The portion allocated to the common stock (residual amount) is $92,800.
B) $10,800 preferred stock dividend will be subtracted from net income attributed to common
stock in arriving at noncontrolling interest in consolidated income.
C) The noncontrolling interest in consolidated net income is $27,200.
D) The preferred stock dividend will be ignored in noncontrolling interest in consolidated net
income because Nichols owns the noncontrolling interest of preferred stock.
E) The noncontrolling interest in consolidated net income is $30,800.
Answer: C
Difficulty: 3 Hard
Blooms: Apply
Feedback: $100,000 – Preferred Dividends ($6 × 3,000) $18,000 = $82,000 × .20 = $16,400
Income to NCI
Preferred Dividends $18,000 × .60 = $10,800 to NCI
$16,400 Income + $10,800 Preferred Dividends = $27,200 Income to NCI
Page 6-18
REFERENCE: 06-05
The following information has been taken from the consolidation worksheet of Graham Company
and its 80% owned subsidiary, Stage Company.
(1.) Graham reports a loss on sale of land (to an outside party) of $5,000. The land cost Graham
$20,000.
(2.) Noncontrolling interest in Stage's net income was $30,000.
(3.) Graham paid dividends of $15,000.
(4.) Stage paid dividends of $10,000.
(5.) Excess acquisition-date fair value over book value amortization was $6,000.
(6.) Consolidated accounts receivable decreased by $8,000.
(7.) Consolidated accounts payable decreased by $7,000.
[QUESTION]
REFER TO: 06-05
41. How is the loss on sale of land reported on the consolidated statement of cash flows?
A) $20,000 added to net income as an operating activity.
B) $20,000 deducted from net income as an operating activity.
C) $15,000 deducted from net income as an operating activity.
D) $5,000 added to net income as an operating activity.
E) $5,000 deducted from net income as an operating activity.
Answer: D
Blooms: Analyze
Feedback: Land Sale of $5,000 Reduces Net Income as Operating Activity in Cash Flows
[QUESTION]
REFER TO: 06-05
42. Where does the noncontrolling interest in Stage's net income appear on a consolidated
statement of cash flows?
A) $30,000 added to net income as an operating activity on the consolidated statement of cash
flows.
B) $30,000 deducted from net income as an operating activity on the consolidated statement of
cash flows.
C) $30,000 increase as an investing activity on the consolidated statement of cash flows.
D) $30,000 decrease as an investing activity on the consolidated statement of cash flows.
E) Noncontrolling interest in Stage's net income does not appear on a consolidated statement of
cash flows.
Answer: E
Blooms: Apply
Page 6-19
Feedback: NCI’s Income is NOT Reported on Consolidated Cash Flows
[QUESTION]
REFER TO: 06-05
43. How will dividends be reported in consolidated statement of cash flows?
A) $15,000 decrease as a financing activity.
B) $25,000 decrease as a financing activity.
C) $10,000 decrease as a financing activity.
D) $23,000 decrease as a financing activity.
E) $17,000 decrease as a financing activity.
Answer: E
Blooms: Analyze
Feedback: Parent’s Dividends $15,000 + NCI Dividends $2,000 = $17,000 Decrease in
Cash Flow for Financing
[QUESTION]
REFER TO: 06-05
44. How is the amount of excess acquisition-date fair value over book value recognized in a
consolidated statement of cash flows assuming the indirect method is used?
A) It is ignored.
B) $6,000 subtracted from net income.
C) $4,800 subtracted from net income.
D) $6,000 added to net income.
E) $4,800 added to net income.
Answer: D
Blooms: Analyze
Feedback: $6,000 Excess Amortization is not a Cash Item and therefore Added Back to
Net Income on the Cash Flow Statement
[QUESTION]
REFER TO: 06-05
45. Using the indirect method, where does the decrease in accounts receivable appear in a
consolidated statement of cash flows?
A) $8,000 increase to net income as an operating activity.
B) $8,000 decrease to net income as an operating activity.
C) $6,400 increase to net income as an operating activity.
D) $6,400 decrease to net income as an operating activity.
E) $8,000 increase as an investing activity.

Page 6-20
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As the time decided upon between Robert and the professor for
their departure drew closer, Robert decided to have a heart-to-heart
talk with Hakon. Accordingly he sought an interview with him at the
first opportunity.
He found him in excellent spirits. In fact, so carefree did the new
monarch appear, that Robert hesitated to broach the subject; but
concluding that it was a case of now or never he put his temerity
aside.
Hakon heard him out calmly. It was apparent that he had been
expecting this.
“My son,” be said, finally, “this is no surprize to me. The days of
my youth are not so distant that I do not recognize the symptoms of
love.” He sighed. “I can’t blame you for loving her. She is her mother
over again.”
His fine eyes softened as he spoke of his deceased wife. Robert
did not presume to interrupt his thoughts. He waited patiently while
the emperor sat in silent reminiscence.
Presently Hakon resumed, putting memories from him with a
visible effort.
“You are brave, my boy, and deserving of her great love—you see,
she has already told me. Duty calls you back to your world, many,
many leagues distant. But it is a younger, more luxuriant world. I will
not selfishly deny her happiness, though she is my greatest treasure.
I would that you could remain with us, but, if you must go, she may
go with you if she wishes. Let her decide. I make but one condition; if
she can not be happy in your world, bring her back to me if you can.”
“I promise, sire,” said Robert, touched too deeply at the emperor’s
sacrifice to say more for the moment.
A soft step caused them both to look up abruptly. Zola stood
before them. She had stolen in while they were talking. Her eyes
were brimming with misty happiness.
“I heard what you were saying, you dears,” she murmured.
“And your decision, Zola?” Robert faltered.
She pressed a white hand to her breast, swaying like a frail blade
of grass.
“I must think—I must think,” she said, faintly.
And she fled from the room.
24
That night brought no sleep to Robert. Torn between compassion for

Zola’s father, and fear that he himself would lose her, he tossed
about incessantly. When finally dawn came he fell into a sleep of
utter mental exhaustion.
When he opened his eyes it was with no recognition in them of
anyone or anything. The delirium of fever had laid hold upon him.
The severe strain and exertions of the past several days had
reduced his vitality, and the mental anguish of the night following his
interview with Hakon regarding Zola had proved the last straw.
For three days he remained delirious. During this time Zola nursed
him almost constantly. It was with greatest difficulty that she was
induced to snatch rest occasionally. And only to Professor Palmer
would she relinquish her post.
Hakon came to see Robert twice daily. His own physicians were in
continual attendance upon Robert. No effort was spared to bring
about his recovery if possible. On the fourth day, with the crisis
safely passed, Robert recovered his senses.
His first recognition was of Zola, to her unbounded delight. She
was seated at his bedside. During his delirium he had spoken her
name many times. At first he feared she might be another vision. He
reached out to touch her and reassure himself of her reality, only to
sink back weakly. She caught his hand.
“Do you know me now, Robert, darling?” she whispered, with
eager tenderness.
Robert pressed her hand happily, nodded, and promptly fell off
into peaceful slumber—his first normal rest in many hours.
When he again opened his eyes he was stronger and able to take
some nourishment, which Zola fed him. She had not left his bedside
since his first return to consciousness early that same morning. By
the doctors’ orders she would not permit him to talk. But for lovers
there are other means of communication than mere words. Both
were infinitely happy.
The effects of Zola’s continued vigil of the past three days and
nights were visible in her face. Only at Robert’s insistence, and for
fear that he would excite himself into a relapse, did she finally
consent to take to her bed for sleep. She slept the entire afternoon
and night without waking, and rose feeling greatly refreshed but with
bitter reproachment on her lips for those who had permitted her to
sleep so long.
By this time Robert, much improved, was allowed to talk. Zola
perched herself on the edge of his bed.
“We are to be married as soon as you are up,” she announced,
bending and kissing him as he started to splutter some inane reply.
The emperor, coming in at the moment, laughed outright and made
his exit quickly.
“And I shall see and know that wonderful world of yours,” she
continued.
Her calm assertion swept Robert’s last scruples away. In his heart
was a song of joy, and his boyish enthusiasm and anticipation ran
riot. The thought of transplanting this desert flower from an unlovely,
withered planet to his own luxuriant world was a prospect of
boundless, delightful possibilities! It would seem a wonderland to
her. She would be the happiest and most appreciative girl alive—and
his!
“You bet you shall, sweetheart,” he agreed. “You shall see our
wonderful, rugged mountains, and beautiful green valleys; the
winding rivers, the vast oceans, and the great lakes of water, the
very drops of which are so precious here. Our clouds, the mysterious
storms that will frighten you with their magnificence, and the silver
rain; all these wonders and many more shall be yours.”
“Do you really have big bodies and rivers of water, open and
unprotected from the sun’s rays? Why doesn’t it evaporate, or sink
into the soil and become lost?”
“You shall see, sweetheart. You shall ride upon oceans more vast
than your deserts, where nothing but rolling water can be seen.”
Zola shook her head in perplexity and with a certain measure of
doubt. All this seemed virtually impossible to her. Only her implicit
confidence in Robert enabled her to believe, and even in that belief
she was unconsciously prone to reserve. Well, she would see what
she would see. No doubt it was a wonderful world; but ——.
However, she was a diplomat.
“Truly these are wonderful things you tell me of, my love. I am wild
to see them.”
At this point they were interrupted by the doctor.
“You children must be quiet awhile now. I forbid my patient to
excite himself by talking any more till this afternoon.”
And as this doctor was an autocratic soul, accustomed to having
his way, they were forced to forego their conversation till later. In the
heart of each, however, there was a bewildering flutter of joy and
happiness.
25
During the next few days Robert grew rapidly stronger, and soon
was permitted to be up and around.
Taggert’s body had been recovered, and now rested in state
within one of the royal vaults, where it had been placed with great
reverence by the Martians at the command of the emperor.
Elaborate and touching were the ceremonies which attended the
procedure. Robert had not been able to attend the ceremonies, but
Professor Palmer, accompanied by the emperor and Princess Zola,
witnessed them together.
Resigned to their determination to return to their own planet,
taking his beloved daughter with them, the emperor bent his efforts
toward loading the Sphere with both tynir and rahmobis in large
quantities.
Of the tynir it was simply a question of how much the Sphere
would be able to lift safely. More than two and a half tons of the
precious metal, in small ingots and in heavy sacks, were stacked on
the floor of the main chamber—virgin gold, every ounce of it.
The supply of rahmobis, or diamonds, though not so plentiful, was
a far greater treasure even than the precious yellow metal, although
most of these were in the rough. They averaged in size from half a
carat to several carats, with here and there a specimen running ten
or fifteen carats. Of these assorted, uncut stones there were nine
sacks, each about the size of a five-pound sack of sugar. In addition
there were several packets of finely cut and polished gems, the
product of skilled Martian cutters. These varied approximately from a
quarter of a carat to two carats, but a dozen or more fine stones
weighed more than ten carats each! Some excellent emeralds and
rubies were included among the cut stones, but only a few, because,
while the white diamonds were quite plentiful on Mars, the green and
the pigeon-red varieties were very rare. Truly the Sphere was to
carry back a ransom of kings!
But of all this treasure none was so precious to Robert as his
princess.
With Robert’s complete recovery, a great pageant was arranged in
which the emperor, princess and all the nobles were to participate.
Robert and Professor Palmer were invited to ride with Zola and her
father in the procession.
Elaborate preparations were made for this event which was to
typify the recent victory and the reunion of all factions, and the
gratitude of the Martians for the timely aid by their visitors from
Earth. Great ornamental arches were hurriedly built, and large
quantities of the various kinds of Martian flowers were accumulated
in readiness for the event. The gathering of these flowers was no
small task, since the restricted growing areas of the waning planet
permitted of but little deviation from the grim task of producing
enough food to sustain its populace.
The pageant was also to serve another purpose. At its termination
the emperor was to announce the giving of his daughter’s hand in
marriage to Robert and her subsequent departure for Earth with him.
Some resistance was anticipated from various nobles, particularly
those who were eligible for Zola’s hand. It was because of a possible
demonstration against, the princess’ departure that the emperor, with
excellent foresight and admirable sacrifice, had commanded that the
wedding take place quietly at the palace immediately after the
pageant, and that the Sphere start on its long journey with his most
precious possession immediately afterward.
The day of the great pageant dawned with the same wonderful
brilliance that heralded 680 of the 687 days of the Martian year.
All preparations of the royal party for the pageant were completed
before noon. At midday Robert and the professor partook of a simple
luncheon with Zola and her father. With the specter of separation so
near, conversation languished, and it was with real effort that the
professor maintained at least a semblance of cheerfulness within the
little group through his persistent but tactful patter of small talk.
Early in the afternoon the nobles began to arrive. Within an hour
the assembly of plumed and gayly dressed riders had formed in
marching order, and with a great clattering of hoofs rode through the
big archway leading from the palace terrace to the main road.
A company of guards led. The emperor and his daughter,
accompanied by Robert and Professor Palmer, followed them.
Behind them came the chief nobles of the great empire.
From the time of the earliest formation on the palace terrace, it
became apparent that some peculiar unrest pervaded the assembly.
This grew more tense as the time passed, and was only temporarily
relieved when the column had ridden out from the palace. Several
times as his mount shied, Robert fancied he surprized secret
communications between certain of the nobles. The ostensibly
unconcerned looks upon their countenances, and their abrupt
cessation of whispered confidences as he caught their eye,
somehow forced an unpleasant conviction upon Robert that these
communications not only concerned the emperor and his party, but
presaged evil for them. He wondered if, in some manner, advance
news of his impending marriage to the princess and of their intended
departure had got abroad. Anticipation of such information likely
would produce resentment among the young-bloods who had hoped
to obtain the princess’ hand themselves, and they might endeavor to
stir up trouble to prevent the match and the departure of the
princess. He determined to keep a sharp outlook for any sign of
treachery.
Into the main thoroughfare they swung. Here they halted briefly
while the rest of the procession promptly formed behind. Then they
moved on again toward the heart of the city.
Soon they passed beneath artificial arches over flower-strewn
streets lined with dense crowds of eager-eyed, cheering Martians
who were gathered to greet their new emperor and to see his
mysterious aids from the planet Earth, who had put their powerful
enemies to rout at the eleventh hour. Robert could not suppress a
feeling of exhilaration as the deafening acclamations of the populace
swelled about them. Fully half the demonstration was for the
professor and himself. He glanced at the princess—his princess—
riding close beside him, her lovely cheeks aglow with excitement.
Her eyes were turned toward him in rapt admiration. Small wonder
that Robert’s head swam a bit with pride and keen enjoyment in this,
his moment of supreme triumph and popularity. The professor, too,
seemed not without his appreciation of the moment.
The procession finally reached the Galpraæ, a huge amphitheater
situated in the eastern end of the city. Here, flanked by his
guardsmen on one side and the nobles on the other, the emperor
spoke briefly to the people. Robert, the professor, and Zola occupied
positions of honor near him.
The people listened to his speech with marked respect and
interest to its conclusion, when they burst into wild cheering lasting
many minutes. The emperor held up his hand for quiet, till finally the
demonstration ceased. Then, calmly, distinctly, he announced his
daughter’s early nuptials and departure with Robert.
For some seconds after this statement a deep silence reigned.
Then, suddenly, one of the nobles rose to his feet!
He pointed dramatically at Robert and Professor Palmer.
“Shall we permit these Earth-beings to carry off our own princess
to another planet? Shall we permit her to wed one of these common
beings while the best, the noblest, blood of all Mars is offered for her
hand? No! A thousand times no! Our emperor’s better judgment has
been swayed by some strange influence of these beings. Brethren,
let us not stand by idly and permit this outrage!”
As if by prearranged signal, about half the nobles sprang to their
feet. Drawing their sabers, they rushed upon the little group about
Robert.
At the same moment, pandemonium seemed to have broken
bounds. The fickle audience in the great enclosure leapt to their feet
as one and surged forward, shouting madly! The guardsmen, who
fortunately were all picked men and loyal to the core, dashed forward
to protect their emperor and his guests, but were prevented from
joining them by the resistance of the immediate group of traitorous
nobles. A few of the noblemen who were loyal joined the guardsmen
in the instant melee.
Though Robert was on the alert for something of this sort, the
suddenness of it left him momentarily aghast. There seemed no
escape. His saber and the emperor’s flashed from their scabbards
together. The next instant the professor and they with two
guardsmen who had somehow managed to hew their way through to
them, had formed a ring of steel round Zola. Against this vicious
circle the furious noblemen charged.
For minutes that seemed hours, the unequal combat raged about
these five staunch men and the trembling princess. The guardsmen
and loyal noblemen were more than holding their own with the larger
part of the rebels. But the little group in the midst of it all was facing
annihilation before aid could reach them. Already Hakon was
wounded, while one of the guardsmen was down. Robert, too, was
wounded, though fortunately not yet seriously.
26
Suddenly Robert felt the pavement give way beneath his feet. The
next instant he was precipitated downward. A hard surface seemed
to rush upward and strike him. He sprawled painfully. Then
darkness!
For a moment he believed oddly that he had just sustained a blow
which had knocked him unconscious, mistaking the sudden quiet
and darkness for oblivion in his bewilderment.
Abruptly the mantle of blackness surrounding him magically
dropped away. As he scrambled stiffly to his feet he perceived that
he stood with others within a tunnel of masonry dimly lit by a series
of incandescent lights. An exclamation of relief burst from his lips as
he saw Zola sitting on the floor a few feet away. She gave a glad
little cry as she recognized him. He quickly helped her to her feet. At
the same moment he saw Hakon and Professor Palmer, and, with
them, the surviving guard who had fought so valiantly. On the
pavement lay one of their late enemies, strangely still.
“This is a secret passage leading to the palace,” Hakon explained
hurriedly. “Its existence and the automatic trap-door entrance above
us with its rebound feature alone has preserved our lives thus far.
Lead on, Dyarkon.”
The guard addressed, obediently led the way down the passage,
the others following. Above, faint sounds of the conflict still raging
seemed far away. Zola placed her hand in Robert’s trustfully. They
had proceeded several rods when the emperor, who was second in
lead, swayed uncertainly. He would have fallen but for Robert’s
timely assistance. Zola also rushed to his side with a startled cry.
“Ah, my children, I fear I am too badly wounded to go on. Leave
me and escape while you may.”
“We go on only with you, sire,” said Robert, firmly.
Gently he and Professor Palmer lifted the protesting monarch
between them. In this manner they resumed their march down the
long passage, led by the faithful Dyarkon. Zola followed closely in
the rear.
In silence they made their way through the long tunnel beneath
the city’s streets. Except for the shuffle of their feet, an oppressive,
deathlike stillness reigned. At intervals Hakon begged them futilely to
put him down and hurry on to safety without him.
Though the passage led in almost direct line from the
amphitheater to the palace, it was a considerable distance. The
emperor was no slight burden and Robert’s muscles ached with the
continued strain. In spite of his years, however, the professor
seemed to be bearing his part of the monarch’s weight without great
effort.
A touch on his shoulder caused Robert to look round sharply. Zola
was directly behind him, her hand upon his arm.
“Wait!” she whispered, glancing apprehensively over her shoulder.
Robert and Professor Palmer halted. Dyarkon, proceeding a few
paces farther, also stopped as he perceived they were not following.
“What is it?” Robert asked. His gaze followed hers down the dim
passage stretching off behind them in ghostly emptiness. He failed to
discern any cause for her uneasiness.
“Listen! Did you not hear footsteps?”
They all listened tensely. Only the beating of their own hearts
disturbed the deadly underground quiet. An icy touch on his neck
caused Robert to start. But he discovered that it was only a drop of
water, fallen from the sweating roof. Here, possibly, was the origin of
the sound which had startled Zola. Every little sound within the long
tunnel was magnified a hundred times by the reverberation from the
dead walls. The shuffling of a foot brought muffled shufflings from the
farthest recesses of the passage, dying in soft, throbbing whispers
that slipped from wall to wall faintly.
“I thought I heard footsteps following us,” Zola explained a trifle
shamefacedly, but with a little pucker of perplexity on her forehead.
“Just the echoes, my dear,” said her father.
They resumed their march toward the palace. His ears keenly
alert for sounds of pursuit, Robert, too, fancied several times that he
heard cautious footsteps following in the distance; but he finally
concluded that what he heard was nothing more than the countless
rustling echoes from their own footsteps.
At last they reached a winding stairway. Up this they followed
Dyarkon till it brought them to another level stretch of paving.
At a command from the emperor the guard stopped and fumbled
along the base of the right wall. A door in the masonry swung
outward. Through this they all followed quickly, closing the door
behind them.
They now stood within another passage exactly like the first, but
running at right angles to it. Was it imagination that caused Robert to
believe he heard a scurry of footsteps along the passage they had
just quit?
“Did you hear?” murmured the princess, clutching Robert’s arm.
He nodded. Then he was right. They had just quit the other
passage in time!
The little procession moved on again. Another short flight of stairs
brought them to a stop before a blank wall at the end of the passage.
Here Dyarkon repeated his former performances and the wall
opened.
A brilliant stream of sunlight burst upon them. The abrupt contrast
with the dim glow of the passage all but blinded them for a few
seconds.
An involuntary exclamation burst from Robert’s lips. The Sphere
rested within fifty feet of them! They were standing inside the broad
wall of the palace courtyard!
Instantly his mind formed a plan of action. They would make a
dash for the Sphere. Once safely inside they could rise quickly and
observe the actions of the crowds. Then they could lay their plans at
leisure.
Rapidly he outlined his plan to the others, who acquiesced at
once. If their pursuers had already reached the palace they had not
a moment to lose. The courtyard was yet closer.
Hakon was able to stand, though his wounds had left him pitifully
weak. Dyarkon and the professor now assisted him while Robert
hurried ahead to open the trap-door entrance into the Sphere.
As they emerged from the wall a loud outcry greeted them.
Without stopping to ascertain its source they hurried toward the
Sphere with all possible speed. Fortunately the trap operated readily,
and a few seconds later they were all safely shut within.
The outcry was now explained. Into the courtyard from the palace
poured a score of nobles with drawn sabers, shouting for them to
stop.
Robert jerked the control over. The Sphere leapt from the ground
with such sudden force that all except Robert and the staunch
Dyarkon were thrown to the floor. A minute later they were soaring
far above the heads of their late pursuers.
“Phew! Close shaves are getting to be our specialty,” exclaimed
Robert, recovering his breath for the first time in many minutes. “Now
for our observations and conference.”
He checked the Sphere’s ascent and turned to the others.
Zola was already busily binding her father’s wound. Professor
Palmer had just brought her some water and a supply of bandages
from the first-aid chest. Fortunately, though Hakon was weak from
loss of blood, his wound was found not to be serious.
Hakon was staring intently groundward from his position by a
window. Following his gaze, Robert saw a dense mob round the
palace. Even at this height he could hear the Martians’ cries faintly.
Evidently the rebel noblemen had succeeded well in working the
masses up in revolt.
Sadly Hakon viewed the disorder below. It was now clear that it
would not be safe for him to return.
“Let us all go to Earth, my dear father,” said Zola. “There we can
be happy together.”
The fugitive ruler pondered for many minutes, while the others
maintained a respectful silence. Finally he sighed resignedly. A faint
smile played over his countenance as he turned to his daughter.
“Ah, my dear, I was a very foolish old man to think of letting you
go alone. We shall, as you say, be far happier together. We shall
have riches and contentment in this world of Robert’s—if, indeed, he
and Professor Palmer will share a little of their fortune with us.” He
smiled as he nodded toward the bullion stacked on the chamber
floor.
“You are the spokesman, Robert,” chuckled the professor.
“The treasure is yours and Zola’s, sire, now that you are with us,”
said Robert.
“I have given it to you and Professor Palmer, my boy, and it
remains yours, except for what small portion you might wish to
assign me—and Dyarkon, if he decides to go with us. As for Zola,
she will share with you as your bride. What say you, Dyarkon—do
you wish to go with us?”
“Oh, sire, I shall go if you desire it; but I was to have been married
shortly. My heart is there.” He pointed below.
“Then you shall be permitted to return, my man. Accept this, my
present to your bride; and may you have great happiness.” He
handed the guard a string of beautiful emeralds which he had been
wearing.
The faithful Martian was speechless with gratitude.
“I suggest, then, that the treasure be divided into four equal parts,”
said the professor, presently; “one quarter for each of us. There is
sufficient wealth here to make every one of us overwhelmingly rich
on Earth.”
So it was agreed.
The question of provisions was the next consideration. At Hakon’s
orders, large quantities of evaporated fruits and vegetables had
previously been placed within the cupboards of the Sphere. A goodly
quantity of the Sphere’s original supply of food tablets, etc.,
remained. Fortunately, too, the oxygen tanks contained enough gas
to purify the air in the Sphere for a long while. It only was necessary
to replenish their water supply, when they could also leave Dyarkon.
The latter task was not so easy as it sounds. For there are no
convenient, open streams on Mars. They must either chance landing
at some power station or farm, or fly to one of the poles and there
obtain water from one of the giant reservoirs. The elements at the
nearest pole being very treacherous at this season, it was decided to
chance a visit to some farmhouse.
A hurried trip was accordingly made to a small farm, a sufficient
distance from the scene of the rebellion to be reasonably safe. Here
the astonished farmer, who had not yet heard of the rebellion and
who did not even recognize the emperor and the princess, eagerly
helped these distinguished visitors to fill the water tanks of the
mysterious Sphere. This the farmer had heard of, and both he and
his wife gazed upon it with mingled wonder and dismay. Afterward
they followed it with their eyes until it had passed beyond their vision.
This farmer, and his wife and Dyarkon, had the distinction of being
the persons on Mars who last saw their emperor; though the two first
named did not know this till Dyarkon presently told them.
After the filling of the water tanks, Robert steered the Sphere
straight toward the distant pale star which he and Professor Palmer
knew was the Earth. Despite their anticipation and resignation, Zola
and her father gazed back upon their erstwhile world in silent awe,
and not without some sadness, long after it had ceased to be more
than a mere ocher and rose disk.
Through the eternal night sped the infinitesimal world with its
population of four. And through the long hours of Robert’s watches,
Zola was at his side always. Their love was as an immortal thing,
born of space and eternity. Hand in hand they fled across the
universe to their future world of promise.
Profiting by their previous experience with gravitation, or rather, an
absence of gravitation and stabilization, Robert and the professor
properly manipulated the disk and gyrostats on this trip, avoiding the
danger which had so nearly proved their undoing before. Robert
prevented also the recurrence of another unpleasant experience, by
cutting short pieces of stout cord, one for each of them, and
particularly cautioned Zola and her father to tie them about their
bodies at night and secure the other end to a rung or some other
stationary object at a safe distance from the whirling gyrostats.
It was not long after that they had a taste of air-floating, and the
cords proved their worth. This sensation, the continued sunshine out
of a black sky and other phenomena, were all new to Zola and her
father. The time passed rapidly.
A deck of playing cards was got out and Hakon and Zola were
initiated into the mysteries of the Earthmen’s card games, which they
learned readily and seemed to enjoy keenly. They then proceeded to
show Robert and Professor Palmer some of their own games.
These, being played with cards not greatly different from our own,
were easily adapted to the cards they were using. In fact, one of their
games, called Agahr, was virtually identical with our own simple
game of casino.
So it did not seem long ere they were within a day’s journey of the
Earth. Not a single mishap had delayed their progress so far. Barring
the unexpected, they should be but a day longer in returning than the
period covered by the trip to Mars, in spite of the considerably
increased distance between the two planets by this time. Nearly
three months had elapsed since the departure from the Earth.
27
As the Earth’s disk expanded before their eyes, Robert pointed out
to Zola and Hakon the outlines of the continents and oceans, the
mountain ranges and rivers. Their genuine wonder and delightful
anticipation were a source of keen enjoyment to both the professor
and Robert.
“It surpasses my wildest imagination to vision an expanse of water
so vast that one can not see its boundaries!” exclaimed Hakon,
excitedly. “I can scarcely contain myself till we shall actually see
these wonders with our own eyes.”
“And think, Father, of the great forests of trees where one can
really get lost; the mysterious clouds in the sky; the rushing rivers
and waterfalls! Oh, how could I have thought of letting you stay away
from all this! How happy we can be, can’t we, Robert?”
“Indeed we can, sweetheart,” he replied, with a feeling that his
measure of delight was far more than he deserved.
Closer, closer drew the big world—his world and hers. Its great
disk swelled and swelled, until it was no longer a disk but a vast
expanse stretching away in all directions.
Robert had reduced the Sphere’s speed until they approached the
surface, now less than fifty miles away, at about the speed of a fast
passenger train. As they drew closer he reduced their speed still
further. A big cloud bank obscured their view of the Earth’s surface
now, but he knew that they were above the Atlantic. He had already
given the Sphere the spin of the swiftly revolving Earth, before
entering its envelope of atmosphere. They now drifted serenely, high
above the clouds.
As they slowly drew near the cloud bank, Zola made a natural
mistake of thinking it the ocean, till Robert told her different. Her
astonishment and delight were great as they plunged through the
fluffy mist and emerged above the water. A big sea was running, and
Robert permitted the Sphere to drop within a hundred yards of the
tall crests.
The continual rolling of the water mystified Hakon and Zola. This
was explained to them with some difficulty. Robert opened two of the
Sphere’s ports, for the first time since leaving Mars. They all filled
their lungs gratefully with the keen, salty air as it blew in upon them.
The main force of the gale was not felt, however, because the
Sphere was being driven before it. Once an eccentric gust sucked
the Sphere down abruptly. A mountainous wave, rearing hungrily
toward the big metal ball, slapped forcibly against it, causing it to
rebound high into the air with a suddenness that upset everyone.
After that Robert kept a safe distance above the seething waters.
For a while they scudded swiftly along under the hypnotic spell of
the restless sea. Its hissing turbulence was a source of continual
awe and wonder to their guests. Finally Robert closed the ports and
sped the Sphere toward the Jersey coast.
It was in the early afternoon when they passed over the coast line.
Here their appearance was first noted and news of the Sphere’s safe
return flashed all over the world. Later, as they sailed over New York,
a droning of many whistles heralded their arrival, while a blimp, a big
seaplane, and several airplanes glided and cavorted over, under and
round them.
“Sphere ahoy!” shouted one venturesome chap, a reporter on the
Times, as he whizzed by, a dozen feet away, in a two-passenger
airplane. “What news?”
But the drone of his engine drowned a possible answer as the
distance between them widened rapidly.
Leaving Manhattan, Robert steered the Sphere toward L—- and
Professor Palmer’s estate. This was at the latter’s request, and in
response to his cordial invitation to Robert and both their guests to
make their home with him for the present.
Their arrival at the Palmer estate found the place already overrun
with reporters and photographers in anticipation of their return there.
Even the resourceful Henry could not stem the tide. Motion pictures
of them all were run off and rushed to headquarters for early
projection upon the silver screen all over the world.
Hakon, and Zola, more charming than ever, both accepted the
situation with jolly good nature. Praises of the beautiful maiden from
Mars were many, and their sincerity was reflected in the headlines
and articles which appeared as by magic in the afternoon papers
throughout the country the very day of their arrival.
The party rested at the Palmer estate for several days. Many were
the delightful strolls which Robert and Zola took in the lovely
grounds. The soft, luxuriant grass under foot, the tall trees, the
beautiful shrubbery and flowers were as a fairyland to the princess,
with her fairy prince at her side. As for Robert, he was in a veritable
seventh heaven.
The emperor and Professor Palmer, now great cronies, were
constantly together. Halton never tired of the professor’s tales of the
Earth’s resources, its history and people; and of our long observation
of and conjectures regarding his own planet, Mars.
Negotiations were opened with a firm of expert diamond cutters in
New York for the cutting and polishing of the stones brought from
Mars. Their representatives, escorted by a heavy guard, arrived
promptly and departed with the first valuable consignment of the
rough gems.
The balance of the treasure, in bullion and stones, had been
safely deposited in the vaults of three different banks for greater
safety. The bullion, however, was rapidly converted into cash and
deposited in equal shares to the individual credit of the four
adventurers and one other person. This person was Taggert’s
sweetheart, a Miss Sarah Daugherty, who had waited faithfully for
the valiant reporter’s return. By mutual consent, a fifth and equal
share of the treasure was allotted her. Taggert’s mother, poor
woman, had not lived to see the return of the Sphere. She had
contracted pneumonia and passed away a month before her son’s
death. One of the first things Robert had done upon his return was to
seek Mrs. Taggert and Miss Daugherty, after delivering Taggert’s
notes to the Morning Chronicle with an additional report on the
events following the lion-hearted reporter’s death. He obtained the
publishers’ ready consent to turn over all salaries and bonus due
Taggert, to Miss Daugherty.

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Copyright © 2018 McGraw-Hill Education. All rights reserved.

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Subsidiary unamortized fair value after issuing new

Investment in Odom increases by $1,200 ($835,200 less $834,000).

Common stock — 40,000 shares outstanding $140,000

Copyright © 2018 McGraw-Hill Education. All rights reserved.

Copyright © 2018 McGraw-Hill Education. All rights reserved.

Common stock, $10 par value (50,000 shares outstanding) $500,000

Copyright © 2018 McGraw-Hill Education. All rights reserved.

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That night brought no sleep to Robert. Torn between compassion for

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