ACCOUNTING OPAREE STUDENT NAME STUDENT Multiple Choice Questions Noteshowing you
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ACCOUNTING OPAREE STUDENT NAME STUDENT Multiple Choice Questions Noteshowing your Eaplanatis t- Panini Corporation own» B3% of the outstanding varig diek of Strathmore cwnpany and Malone Corporation owns the remaining 15% of Strwhmer, voting stock. On the consolidated financial statements of Panini Corponatiom and Strathmore, Malone is A) an ailiate B) a noneontrolling interest C) an equity investee D) a related party 2-On June 1, 2014, Puell Company acquired 100% of the stock of Sorrell Inc. On this date, IPuell had Retained Eanings of $100,000 and Sorrell had Retained Earmings of $50,000. On December 31, 2014, Puell had Retained Earnings of S120,000 and Sorrell had Retained Eamings of $60,000. The amount of Retained Earnings that appeared in the December 31, 2014 consolidated balance sheet was: A) $120,000. B) $130,000. C) $170,000. D) $180,000. 3 On consolidated working papers, a subsidiary's net income is A) deducted from beginning consolidated retained earnings. B) deducted from ending consolidated retained earnings. C) allocated between the noncontrolling interest share and the parent's share. D) only an entry in the parent company's general ledger.Explanation / Answer
Solution 1: The correct option is “B”
On the consolidated financial statements of Panini Corporation and Strathmore, Malone Corporation is a non controlling interest Since it holds the minority shareholding in Strathmore i.e less than 50% of the shareholding of Strathmore Corporation.
It is not (A) option i.e an affiliate because an affiliate means a company in which the parent holds the minority shareholding and therefore is a minority owner.
It is not option “D” because a related party would mean an individual or any other form of entity that is related to Strathmore in a manner that it can control or have a substantial influence over Strathmore or could be a part of its important management team of Strathmore.
Solution2: The correct option is “D” I,e $ 1,80,000
The reason is that the opening retained earnings in the subsidiary do not have an effect on the retained earnings in the consolidated financial statements because the retained earnings of the subsidiary on the date on which the holding company acquires the share in the subsidiary company are profits that are due to the efforts of the previous shareholders as they are responsible for earning it. The holding company has no right over these retained earnings.
The closing retained earnings are earned after the acquisition of shares by the holding company in the subsidiary company, and therefore these are added to the retained earnings of the parent company entirely as the parent company has acquired 100% of the shares in the subsidiary company.
Solution3: The correct option is “C”
The subsidiary’s net income is allocated between the non controlling interest share and the parent’s share because both of them are responsible for earning this income . Both of them have a right in this income earned as it earned under their ownership i.e when they were shareholders.
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