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Post Company purchased a percent investment in Stake Company.

6. On January 1, 20X5, Post Company purchased an 80 percent investment in Stake Company.

The acquisition cost was equal to Postâ??s equity in Stakeâ??s net assets at that date. On January 1, 20X5, Post and Stake had retained earnings of $500,000 and $100,000, respectively. During 20X5, Post had net income of $200,000, which included its equity in Stakeâ??s earnings, and declared dividends of $50,000; Stake had net income of $40,000 and declared dividends of $20,000; there were no other intercompany transactions between the parent and subsidiary. On December 31, 20X5, what should the consolidated retained earnings be?

a. $650,000
b. $666,000
c. $766,000
d. $770,000

7. Upper company holds 60 percent of Lower Companyâ??s voting shares. During the preparation of consolidated financial statements for 20X5, the following eliminating entry was made:

Retained Earnings, January 1 10,000

Land 10,000

Which of the following statements is correct?

a. Upper Company purchased land from Lower Company during 20X5.
b. Upper Company purchased land from Lower Company before January 1, 20X5.
c. Lower Company purchased land from Upper company during 20X5.
d. Lower Company purchased land from Upper Company before January 1, 20X5.

8. When remeasuring foreign currency financial statements into the functional currency, which of
the following items would be remeasured using an historical exchange rate?

a. Inventories carried at cost.
b. Trading securities carried at market values.
c. Bonds payable.
d. Accrued liabilities.

9. A foreign subsidiaryâ??s functional currency is its local currency, which has not experienced significant inflation. The weighted-average exchange rate for the current year would be the appropriate exchange rate for translating:

---------------------------------
Sales to Wages
Customers Expense
____________________

a. No No
b. Yes Yes
c. No Yes
d. Yes No

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ANSWERS

Question 6
a. $650,000

Consolidated retained earnings is always equal to parent's retained earnings = 500,00 + 200,000 - 50,000 = 650,000

Question 7
d. Lower Company purchased land from Upper Company before January 1, 20X5.

The ...

Solution Summary

A post Company purchased 80 percent investment in Stake Company.

$2.19