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Chapter 9 - Consolidation Ownership Issues
Q9-1 Preferred stock of the subsidiary is eliminated in the consolidation process in a manner
comparable to that used in eliminating the common stock of the subsidiary. For preferred shares
held by the parent company, a proportionate share of subsidiary income and net assets
Q9-2 All preferred shares held by the parent are eliminated against the balance in the
Q9-3 Preferred dividends normally are deducted in arriving at income available to common
shareholders. When preferred dividends are paid by the subsidiary to shareholders other than
Q9-4 In the event the preferred shares are redeemed, the subsidiary must pay the call
premium and the net assets of the subsidiary will be reduced by the amount of the premium.
Q9-5 The parent will record the difference between the carrying value and the sale price of the
Q9-6 All common shareholders share equally in the net assets of a company. When a
Q9-7 Each purchase of additional shares should be examined to determine the difference
between the price paid and underlying book value. When an amount greater than book value is
paid directly to the subsidiary for the shares, the book value of the shares held by the
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E9-1 Multiple-Choice Questions on Preferred Stock Ownership
1.
d –
$50,000 = $20,000 + $30,000
2.
c –
$29,000 = $20,000 + 0.30($30,000)
3.
b –
Only the retained earnings of the parent company is included.
4.
a –
The portion held by the parent is eliminated when the preferred investment is
eliminated, and the portion held by nonaffiliates is eliminated and included with the
balance reported as noncontrolling interest in the consolidated balance sheet.
E9-2 Multiple-Choice Questions on Multilevel Ownership
1.
b –
$188,000 = $100,000 + 0.80[$80,000 + (0.60 x $50,000)]
2.
b –
$20,000 = 0.40 x $50,000
3.
c –
$22,000 = 0.20 x [$80,000 + (0.60 x $50,000)]
4.
c –
$42,000 = (0.40 x $50,000) + {0.20 x [$80,000 + (0.60 x $50,000)]}
5.
b –
$2,400 = 0.80 x {0.60 x [($150,000 + $100,000 - $200,000) / 10 years)]}
E9-3 Acquisition of Preferred Shares
Basic Consolidation Entry:
Preferred Stock
100,000
Common Stock
50,000
Retained Earnings
150,000
Investment in Separate CS
140,000
Investment in Separate PS
60,000
NCI in NA of Separate
100,000
