41. Parent Company has two subsidiaries, Alpha Inc. and Beta Inc. Beta Inc. has approached a bank for a loan. Which of the following would be the most useful to the bank?
A. The consolidated financial statements of Parent Company.
B. The unconsolidated financial statements of Parent Company.
C. The financial statements of all three companies.
D. The financial statements of Beta Inc.
42. Parent Company has two subsidiaries, Alpha Inc. and Beta Inc. Beta Inc. has approached a bank for a loan for which Parent is going to provide a guarantee. Which of the following would be the most useful to the bank?
A. The consolidated financial statements of Parent Company.
B. The financial statements of Beta Inc. and Parent Company's unconsolidated financial statements.
C. The financial statements of Beta Inc. and Parent Company's consolidated financial statements.
D. The financial statements of Beta Inc.
43. When are consolidated financial statements not required?
A. When a company buys the assets of another company.
B. When a company pays the book value for the shares of another company.
C. When a company owns less than 100% of a subsidiary.
D. When a company pays more than the book value for the shares of another company.
44. DSI Company recently completed a deal with one of its main suppliers, Microchips Ltd., wherein it purchased 15% of Microchips' voting shares. The deal also gave DSI the right to appoint two of the members of Microchips Ltd for the six-person board of directors. Which of the following methods should DSI use to account for its investment in Microchips Ltd.?
A. Consolidation
B. Equity
C. Fair value
D. Cost
45. If an investor company is adjusting its investment account each period by their share of the investee's net income less dividends declared, what influence does the investor company have over the investee?
A. Control
B. Significant influence
C. Passive investment
D. Active investment
46. If an investor company is adjusting its investment account each period by their share of the investee's net income less dividends declared, what method of accounting for its investment is it using?
A. Consolidation
B. Equity
C. Cost
D. Fair value
47. Tree Corporation can influence the decisions of Root Ltd. but Root is not a subsidiary of Tree Corporation. What method of accounting must Tree Corporation use for Root Ltd.?
A. Consolidation method
B. Equity method
C. Cost method
D. Fair value method
48. Target Company's share capital consists of Class A common shares-unlimited authorized, 100,000 outstanding, 1 vote per share and Class B common shares- 100,000 authorized, 90,000 outstanding, 2 votes per share. If Parent Company bought 75,000 Class A shares, how should they account for their investment in Target Company?
A. Consolidation method
B. Equity method
C. Cost method
D. Fair value method
49. StarTech Company bought 40% of AML Company on January 2, 2014, for their book value of $400,000. During 2014 AML earned net income of $60,000 and paid dividends of $16,000; there were no transactions between the two companies. What amount of investment income would StarTech Company report in 2014 with respect to its investment in AML Company?
A. $6,400
B. $16,000
C. $17,600
D. $24,000
50. StarTech Company bought 40% of AML Company on January 2, 2014, for their book value of $400,000. During 2014, AML earned net income of $60,000 and paid dividends of $16,000; there were no transactions between the two companies. What would be the balance in the Investment in AML Company account on StarTech Company's balance sheet on December 31, 2014?
A. $400,000
B. $406,400
C. $417,600
D. $424,000