AA Ch. 4, AA Ch. 3, AA Ch.2, AA Ch. 1, Ch 4 AA CONSOLIDATED FINANCIAL STATEMENTS AND OUTSIDE OWNERSHIP: Problems, Ch 3 AA Consolidations-Subsequent to the Date of Acquisition: Problems, Ch 2 AA Consolidation of Financial Information: Problems, accoun...

On January 1, 20X1, Pacer Company paid $1,920,000 for 60,000 shares of Lennon Co.'s voting common stock which represents a 45% investment. No allocation to goodwill or other specific account was made. Significant influence over Lennon was achieved by this acquisition. Lennon distributed a dividend of $2.50 per share during 20X1 and reported net income of $670,000. What was the balance in the Investment in Lennon Co. account found in the financial records of Pacer as of December 31, 20X1? $2,040,500. $2,212,500. $2,260,500. $2,171,500. $2,071,500.

$2,071,500.

The financial balances for the Atwood Company and the Franz Company as of December 31, 20X1, are presented below. Also included are the fair values for Franz Company's net assets. https://snipboard.io/b9hVeG.jpg Note: Parenthesis indicate a credit balance Assume an acquisition business combination took place at December 31, 20X1. Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid. Compute the investment to be recorded at date of acquisition. $1,750. $1,760. $1,775. $1,300. $1,120.

$35x50 shares= $1,750

Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 20X1. The book value and fair value of Vicker's accounts on that date (prior to creating the combination) follow, along with the book value of Bullen's accounts: https://snipboard.io/KLGOb7.jpg Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value to obtain all of Vicker's outstanding stock. In this acquisition transaction, how much goodwill should be recognized? $144,000. $104,000. $64,000. $60,000. $0.

(12,000 x $47) -(700,00+210,000+240,000+270,000+90,000-420,000)= 104,000

On January 1, two years ago, Parkway Corporation purchased all of the outstanding common stock of Shaw Company for $220,000 cash. On that date, Shaw's net assets had a book value of $148,000. Equipment with an 8-year life was undervalued by $20,000 in Shaw's financial records. Shaw has a database that is valued at $52,000 and will be amortized over ten years. Shaw reported net income of $25,000 in the year of acquisition and $32,500 in the following year. Dividends of $2,500 were declared and paid in each of those two years. The third year of operations is now complete. For each of the two companies, selected account balances as of December 31 for this third year are as follows: http://highered.mcgraw-hill.com/olc2/dl/940323/ch03_q3_item1.jpg What is consolidated net income for the third year of operations if the parent company uses the initial value method? $80,000 $109,800 $112,500 $115,000 $117,500

250000+142500-175000-100000-2500-5200= 109,800

1. What is a basic premise of the acquisition method regarding accounting for a noncontrolling interest? LO 4-1 a. Consolidated financial statements should be primarily for the benefit of the parent company's stockholders. b. Consolidated financial statements should be produced only if both the parent and the subsidiary are in the same basic industry. c. A subsidiary is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership. d. Consolidated financial statements should not report a noncontrolling interest balance because these outside owners do not hold stock in the parent company.

C

Panner, Inc., owns 20 percent of Watkins and applies the equity method. During the current year, Panner buys inventory costing $114,400 and then sells it to Watkins for $143,000. At the end of the year, Watkins still holds only $29,300 of merchandise. What amount of unrealized gross profit must Panner defer in reporting this investment using the equity method? $5,972 $8,372 $10,472 $1,172

Gross profit rate (GPR): $28,600 ÷ $143,000 = 20% Inventory remaining at year-end = $29,300 GPR = × 20% Unrealized gross profit = $5,860 Ownership = × 20% Intra-entity gross profit—deferred = $1,172

On July 1, TruData Company issues 14,050 shares of its common stock with a $5 par value and a $35 fair value in exchange for all of Webstat Company's outstanding voting shares. Webstat's precombination book and fair values are shown below along with book values for TruData's accounts. https://snipboard.io/Fcjkum.jpg On its acquisition-date consolidated balance sheet, what amount should TruData report as patented technology (net)? $161,750 $230,250 $371,500 $392,000

TruData patented technology = $230,250 Webstat patented technology (fair value) = $161,750 Acquisition-date consolidated balance sheet amount = $392,000

Which of the following results in an increase in the investment account when applying the equity method? Unrealized gain on intra-entity inventory transfers for the prior year. Unrealized gain on intra-entity inventory transfers for the current year. Dividends paid by the investor. Dividends paid by the investee. Sale of a portion of the investment during the current year.

Unrealized gain on intra-entity inventory transfers for the prior year.

The financial statements for Goodwin, Inc., and Corr Company for the year ended December 31, 20X1, prior to Goodwin's acquisition business combination transaction regarding Corr, follow (in thousands): https://snipboard.io/CiQXLc.jpg On December 31, 20X1, Goodwin issued $600 in debt and 30 shares of its $10 par value common stock to the owners of Corr to acquire all of the outstanding shares of that company. Goodwin shares had a fair value of $40 per share.Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock issuance costs. Corr's equipment was actually worth $1,400 but its buildings were only valued at $560. Compute the consolidated receivables and inventory for 20X1. $1,200. $1,515. $1,540. $1,800. $2,140.

$1,200 + $340= $1,540

Which of the following circumstances would require a write-down of goodwill? A decline in the fair value of the related subsidiary. A permanent impairment of value associated with the goodwill. A decline in the fair value of the related reporting unit. A decline in the fair value of the parent company. An extraordinary loss event experienced by the related reporting unit.

A permanent impairment of value associated with the goodwill.

West Company acquired 60 percent of Solar Company for $322,500 when Solar's book value was $422,500. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $215,000. Also at the acquisition date, Solar had a trademark (with a 20-year life) that was undervalued in the financial records by $75,000. Also, patented technology (with a 10-year life) was undervalued by $55,000. Two years later, the following figures are reported by these two companies (stockholders' equity accounts have been omitted): https://snipboard.io/416dbB.jpg Assuming Solar Company has declared no dividends, what are the noncontrolling interest's share of the subsidiary's income and the ending balance of the noncontrolling interest in the subsidiary? $30,750 and $291,800. $34,450 and $306,300. $36,300 and $302,600. $40,000 and $270,000.

$36,300 and $302,600. https://snipboard.io/4Vxg2d.jpg

Carnes has the following account balances as of May 1, 20X1 before an acquisition transaction takes place. https://snipboard.io/LxZEQ7.jpg The fair value of Carnes' Land and Buildings are $650,000 and $550,000, respectively. On May 1, 20X1, Riley Company issues 30,000 shares of its $10 par value ($25 fair value) common stock in exchange for all of the shares of Carnes' common stock. Riley paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Riley has $700,000 in its common stock account and $300,000 in its additional paid-in capital account. On May 1, 20X1, what value is assigned to Riley's investment account? $150,000. $300,000. $750,000. $760,000. $1,350,000.

30,000 x 25 = 750,000

According to GAAP regarding amortization of goodwill and other intangible assets, which of the following statements is true? Goodwill recognized in consolidation must be amortized over 20 years. Goodwill recognized in consolidation must be expensed in the period of acquisition. Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment. Goodwill recognized in consolidation can never be written off. Goodwill recognized in consolidation must be amortized over 40 years.

Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment.

When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true? Income from subsidiary is not recognized until there is an entire year of consolidated operations. Income from subsidiary is recognized from date of acquisition to year-end. Excess cost over acquisition value is recognized at the beginning of the fiscal year. No goodwill can be recognized. Income from subsidiary is recognized for the entire year.

Income from subsidiary is recognized from date of acquisition to year-end.

Racer Corp. acquired all of the common stock of Tangiers Co. in 2009. Tangiers maintained its incorporation. Which of Racer's account balances would vary between the equity method and the initial value method? Goodwill, Investment in Tangiers Co., and Retained Earnings. Expenses, Investment in Tangiers Co., and Equity in Subsidiary Earnings. Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings. Common Stock, Goodwill, and Investment in Tangiers Co. Expenses, Goodwill, and Investment in Tangiers Co.

Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.

Which of the following statements is true regarding a statutory merger? The original companies dissolve while remaining as separate divisions of a newly created company. Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring company. The acquired company dissolves as a separate corporation and becomes a division of the acquiring company. The acquiring company acquires the stock of the acquired company as an investment. A statutory merger is no longer a legal option.

The acquired company dissolves as a separate corporation and becomes a division of the acquiring company.

How does the partial equity method differ from the equity method? In the total assets reported on the consolidated balance sheet. In the treatment of dividends. In the total liabilities reported on the consolidated balance sheet. Under the partial equity method, subsidiary income does not increase the balance in the parent's investment account. Under the partial equity method, the balance in the investment account is not decreased by amortization on allocations made in the acquisition of the subsidiary.

Under the partial equity method, the balance in the investment account is not decreased by amortization on allocations made in the acquisition of the subsidiary.

Prior to being united in a business combination, Atkins, Inc., and Waterson Corporation had the following stockholders' equity figures: https://snipboard.io/aJAjks.jpg Atkins issues 87,250 new shares of its common stock valued at $2 per share for all of the outstanding stock of Waterson. Immediately afterward, what are consolidated Additional Paid- In Capital and Retained Earnings, respectively? $209,000 and $446,500 $107,000 and $446,500 $172,750 and $325,000 $101,000 and $325,000

Value of shares issued (87,250 × $2) = $174,500 Par value of shares issued (87,250 × $1) = 87,250 Additional paid-in capital (new shares) = $87,250 Additional paid-in capital (existing shares) = 85,500 Consolidated additional paid-in capital (fair value) = $172,750

Using the acquisition method, when a bargain purchase occurs and the net amount of the fair values of the separately identified assets and liabilities acquired exceed the fair value of the consideration transferred: assets are recorded at amounts below their assessed fair values. a gain on bargain purchase is recognized at the acquisition date. a loss on bargain purchase is recognized at the acquisition date. a contingent liability is recognized. Goodwill is recognized and tested for impairment on an annual basis.

a gain on bargain purchase is recognized at the acquisition date.

Q3 A basic premise of the acquisition method is that the: A) ultimate objective of consolidated financial statements is to serve as a report to the stockholders of the parent company. B) subsidiary's book value and the purchase price paid by the parent are viewed as separate elements that can be accounted for individually within the consolidation process. C) subsidiary's individual accounts cannot be divided along ownership lines. D) values utilized for consolidation reflect the parent's payment attributed to each subsidiary asset and liability. E) controlled company must always be consolidated in phases depending on the parent's level of ownership.

c

Q1 Parks, Inc. paid $10 per share for 80,000 of the 100,000 shares of KO, Inc, when KO's net assets had a total fair value of $950,000. During the weeks before and after this acquisition, the shares of KO, Inc. have traded for $9 per share. What is the total acquisition business fair value of KO, Inc.? A) $800,000 B) $900,000 C) $980,000 D) $1,000,000 E) $950,000 Feedback: Learning Objective: 04-02

c (800,000 shares) ($10) = $800,00 ((20,000 shares) ($9)= $180,000 = Total acquisition fair value=$980,000

Q7 On January 1 of the year of acquisition, Ashley Inc. pays $300,000 for 60% of Marea Co.'s outstanding common stock in a purchase transaction. Marea reported common stock on that date of $250,000 with retained earnings of $100,000. Equipment, which had a ten-year remaining life, was undervalued in Marea's financial records by $20,000. During the due diligence process, it was discovered that Marea had a patent that was not on the books, but had a market value of $50,000. The patent has a useful life of 10 years. Marea earns income and pays cash dividends as follows: Net Income.....Dividends Paid Acquisition year $40,000.....$15,000 First Year $60,000.....$20,000 Second Year $90,000.....$30,000 What is the non-controlling interest in Mareas's second year income? A) $12,000 B) $24,000 C) $33,200 D) $36,000 E) $38,800 Feedback: Learning Objective: 04-05 Learning Objective: 04-06 Difficulty: Medium Bloom's: Apply AACSB: Analytic AICPA BB: Critical Thinking

c Noncontrolling interest in Marea Co's Income Net Income..................$90,000 Less amortization: Equipment ($20,000/10 year).......(2,000) Patent ($50,000/10 year).................(5,000) = Net income........................................$83,000 * 40% = $33,200

Q5 On January 1 in the year of acquisition, Cobb Enterprises purchased 80% of Bob's Bricks Inc.'s outstanding common shares. In acquiring this interest, Cobb paid a total of $1,500,000. Bob's Bricks' net assets had a book value of $1,300,000 at the time. A building with a ten-year life and a book value of $100,000 was worth $175,000. Any other excess amount was attributed to goodwill. Cobb reports net income for the first year of $350,000 (without regard for its ownership in Bob's Bricks), while Bob's Bricks has $175,000 in earnings. What is the amount of consolidated net income? A) $436,000 B) $490,000 C) $457,500 D) $517,500 E) $492,500

d Cobb fEnterprises Net Income..................................................$350,000 Bob's Brikes Inc. 350,000+175,000(100% x 175,000)-7500=$17,500 - (20% x 167,500(175,000-7,500))=-33,500 = 484,000

On January 3, 20X5, Matteson Corporation acquired 30 percent of the outstanding common stock of O'Toole Company for $1,449,000. This acquisition gave Matteson the ability to exercise significant influence over the investee. The book value of the acquired shares was $823,000. Any excess cost over the underlying book value was assigned to a copyright that was undervalued on its balance sheet. This copyright has a remaining useful life of 10 years. For the year ended December 31, 20X5, O'Toole reported net income of $334,000 and declared cash dividends of $30,000. At December 31, 20X5, what should Matteson report as its investment in O'Toole under the equity method? $1,486,600 $1,540,200 $1,549,200 $1,477,600

Purchase price = $ 1,449,000 Basic 2015 equity accrual ($334,000 × 30%) = 100,200 Amortization of copyright: Excess payment ($1,449,000 − $823,000 = $626,000) to copyright allocated over 10 year life = (62,600) Dividends (30,000 × 30%) = (9,000) Investment account balance at year end = $1,477,600

Using the acquisition method, a company acquires all of the shares of stock of another company. In-process research and development exists and is estimated to have $300,000 fair value. How would you account for these costs? Always expense these costs at the acquisition date Expense these costs unless such costs represent assets with alternative future use Recognize these costs as an intangible asset and amortize the cost over a reasonable life Recognize these costs as an intangible asset and test for impairment These costs have no impact on the purchase

Recognize these costs as an intangible asset and test for impairment

On January 1 of the current year, Barger Company buys 150,000 shares of Booker, Inc.'s common stock for $1,200,000, the book value of the shares. This purchase gave Barger 25% ownership in Booker and the ability to significantly influence operating and financing decisions. At the time of the acquisition, Booker had a total book value of $4,800,000. During the current year, Booker reported net income of $700,000 and paid a $.85 per share dividend. Using the equity method of accounting, what is the journal entry to record the receipt of dividends during the current year? http://highered.mheducation.com/olc2/dl/940322/ch1_q2.jpg A B C D E

$.85 x 150,000 shares C

All of the following would require use of the equity method for investments except: material intra-entity transactions. investor participation in the policy-making process of the investee. valuation at fair value. technological dependency. significant control

valuation at fair value.

The financial balances for the Atwood Company and the Franz Company as of December 31, 20X1, are presented below. Also included are the fair values for Franz Company's net assets. https://snipboard.io/b9hVeG.jpg Note: Parenthesis indicate a credit balance Assume an acquisition business combination took place at December 31, 20X1. Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid. Compute consolidated buildings (net) at the date of the acquisition. $2,450. $2,340. $1,800. $650. $1,690.

$1,800 BV + $650 FV= $2,450

On January 1, 20X2, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts: https://snipboard.io/j7Mkav.jpg Kaltop earned net income for 20X2 of $126,000 and paid dividends of $48,000 during the year. In Cale's accounting records, what amount would appear on December 31, 20X2 for equity in subsidiary earnings? $77,000. $79,000. $125,000. $127,000. $81,800.

$126,000+1,000= 127,000

On January 1, two years ago, Parkway Corporation purchased all of the outstanding common stock of Shaw Company for $220,000 cash. On that date, Shaw's net assets had a book value of $148,000. Equipment with an 8-year life was undervalued by $20,000 in Shaw's financial records. Shaw has a database that is valued at $52,000 and will be amortized over ten years. Shaw reported net income of $25,000 in the year of acquisition and $32,500 in the following year. Dividends of $2,500 were declared and paid in each of those two years. The third year of operations is now complete. For each of the two companies, selected account balances as of December 31 for this third year are as follows: http://highered.mcgraw-hill.com/olc2/dl/940323/ch03_q4_item1.jpg What is consolidated retained earnings at January 1 of the third year if the parent company uses the equity method? $191,100 $192,500 $150,000 $134,600 $187,100

$150,000

On January 1 in the year of acquisition, Cobb Enterprises purchased 80% of Bob's Bricks Inc.'s outstanding common shares. In acquiring this interest, Cobb paid a total of $1,500,000. Bob's Bricks' net assets had a book value of $1,300,000 at the time. A building with a ten-year life and a book value of $100,000 was worth $175,000. Any other excess amount was attributed to goodwill. Cobb reports net income for the first year of $350,000 (without regard for its ownership in Bob's Bricks), while Bob's Bricks has $175,000 in earnings. What value should be attributed to the building in a consolidated balance sheet at the date of the business combination? $140,000 $128,000 $155,000 $160,000 $175,000

$175,000

On January 1, two years ago, Parkway Corporation purchased all of the outstanding common stock of Shaw Company for $220,000 cash. On that date, Shaw's net assets had a book value of $148,000. Equipment with an 8-year life was undervalued by $20,000 in Shaw's financial records. Shaw has a database that is valued at $52,000 and will be amortized over ten years. Shaw reported net income of $25,000 in the year of acquisition and $32,500 in the following year. Dividends of $2,500 were declared and paid in each of those two years. The third year of operations is now complete. For each of the two companies, selected account balances as of December 31 for this third year are as follows: http://highered.mcgraw-hill.com/olc2/dl/940323/ch03_q2_item1.jpg What is consolidated retained earnings at January 1 of the third year if the parent company uses the initial value method? $191,100 $192,500 $150,000 $134,600 $187,100

$187,100 150000-(2500x2yrs dividend income)+yr1 earnings: ( 25000-2500-5200)+yr2 earnings: (32500-2500-5200)=187,100

West Company acquired 60 percent of Solar Company for $313,500 when Solar's book value was $413,500. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $209,000. Also at the acquisition date, Solar had a trademark (with a 20-year life) that was undervalued in the financial records by $69,000. Also, patented technology (with a 10-year life) was undervalued by $49,000. Two years later, the following figures are reported by these two companies (stockholders' equity accounts have been omitted): https://snipboard.io/vQ5Sd7.jpg Assuming Solar Company has declared no dividends, what are the noncontrolling interest's share of the subsidiary's income and the ending balance of the noncontrolling interest in the subsidiary? $40,000 and $262,800. $34,990 and $299,460. $31,650 and $285,320. $36,660 and $296,120.

$36,660 and $296,120. https://snipboard.io/PSIiNb.jpg

On January 1, 20X4, Chamberlain Corporation pays $632,800 for a 60 percent ownership in Neville. Annual excess fair-value amortization of $20,600 results from the acquisition. On December 31, 20X5, Neville reports revenues of $517,000 and expenses of $349,000 and Chamberlain reports revenues of $770,000 and expenses of $420,000. The parent figures contain no income from the subsidiary. What is consolidated net income attributable to the Chamberlain Corporation? $438,440 $517,000 $497,400 $459,040

$438,440 https://snipboard.io/ngQaZY.jpg

Paar Corporation bought 100 percent of Kimmel, Inc., on January 1, 20X2. On that date, Paar's equipment (10-year life) has a book value of $320,000 but a fair value of $444,000. Kimmel has equipment (10-year life) with a book value of $285,000 but a fair value of $415,000. Paar uses the equity method to record its investment in Kimmel. On December 31, 20X4, Paar has equipment with a book value of $224,000 but a fair value of $378,500. Kimmel has equipment with a book value of $199,500 but a fair value of $369,800. What is the consolidated balance for the Equipment account as of December 31, 20X4? $514,500 $748,300 $553,500 $423,500

$514,500 https://snipboard.io/0wjBgR.jpg

The financial statements for Goodwin, Inc., and Corr Company for the year ended December 31, 20X1, prior to Goodwin's acquisition business combination transaction regarding Corr, follow (in thousands): https://snipboard.io/CiQXLc.jpg On December 31, 20X1, Goodwin issued $600 in debt and 30 shares of its $10 par value common stock to the owners of Corr to acquire all of the outstanding shares of that company. Goodwin shares had a fair value of $40 per share.Goodwin paid $25 to a broker for arranging the transaction. Goodwin paid $35 in stock issuance costs. Corr's equipment was actually worth $1,400 but its buildings were only valued at $560. In this acquisition business combination, at what amount is the investment recorded on Goodwin's books? $1,540. $1,800. $1,860. $1,825. $1,625.

$600 Cash + ($40X30shares)= $1800 investment --- $25 broker fees expensed $35 stock issuance cost reduces Paid In Capital

Acker Inc. bought 40% of Howell Co. on January 1, 2017 for $576,000. The equity method of accounting was used. The book value and fair value of the net assets of Howell on that date were $1,440,000. Acker began supplying inventory to Howell as follows: https://snipboard.io/JUfXAC.jpg Howell reported net income of $100,000 in 2017 and $120,000 in 2018 while paying $40,000 in dividends each year. What is Acker's share of the intra-entity inventory gross profit that should be deferred on December 31, 2017? $1,600. $4,000. $8,000. $15,000. $20,000.

$75,000-$55,000=$20,000 x ($15,000/$75,000)=$4,000 x 40%= $1,600 Deferred intraentity gross profit

The financial balances for the Atwood Company and the Franz Company as of December 31, 20X1, are presented below. Also included are the fair values for Franz Company's net assets. https://snipboard.io/b9hVeG.jpg Note: Parenthesis indicate a credit balance Assume an acquisition business combination took place at December 31, 20X1. Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid. Compute consolidated cash at the completion of the acquisition. $1,350. $1,085. $1,110. $870. $845.

$870+$240-$15-$10= $1,085

The financial balances for the Atwood Company and the Franz Company as of December 31, 20X1, are presented below. Also included are the fair values for Franz Company's net assets. https://snipboard.io/b9hVeG.jpg Note: Parenthesis indicate a credit balance Assume an acquisition business combination took place at December 31, 20X1. Atwood issued 50 shares of its common stock with a fair value of $35 per share for all of the outstanding common shares of Franz. Stock issuance costs of $15 (in thousands) and direct costs of $10 (in thousands) were paid. Compute fair value of the net assets acquired at the date of the acquisition. $1,300. $1,340. $1,500. $1,750. $2,480.

($240+$600+580+$250+$650+$400)-($240+$60++$1,120)= $1,300

Carnes has the following account balances as of May 1, 20X1 before an acquisition transaction takes place. https://snipboard.io/zeHyA6.jpg The fair value of Carnes' Land and Buildings are $650,000 and $550,000, respectively. On May 1, 20X1, Riley Company issues 30,000 shares of its $10 par value ($25 fair value) common stock in exchange for all of the shares of Carnes' common stock. Riley paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Riley has $700,000 in its common stock account and $300,000 in its additional paid-in capital account. What will be the consolidated additional paid-in capital as a result of this acquisition? $440,000. $740,000. $750,000. $940,000. $950,000.

($25-$10)30,000 +300,000-10,000= $740,000

On January 1, two years ago, Parkway Corporation purchased all of the outstanding common stock of Shaw Company for $220,000 cash. On that date, Shaw's net assets had a book value of $148,000. Equipment with an 8-year life was undervalued by $20,000 in Shaw's financial records. Shaw has a database that is valued at $52,000 and will be amortized over ten years. Shaw reported net income of $25,000 in the year of acquisition and $32,500 in the following year. Dividends of $2,500 were declared and paid in each of those two years. The third year of operations is now complete. For each of the two companies, selected account balances as of December 31 for this third year are as follows: http://highered.mcgraw-hill.com/olc2/dl/940323/ch03_q2_item1.jpg What is consolidated net income for the third year of operations if the parent company uses the partial equity method? $109,800 $112,000 $115,000 $117,500 $113,500

(250,000+142500-175000-100000-2500-5200)= 109,800

Carnes has the following account balances as of May 1, 20X1 before an acquisition transaction takes place. https://snipboard.io/zeHyA6.jpg The fair value of Carnes' Land and Buildings are $650,000 and $550,000, respectively. On May 1, 20X1, Riley Company issues 30,000 shares of its $10 par value ($25 fair value) common stock in exchange for all of the shares of Carnes' common stock. Riley paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Riley has $700,000 in its common stock account and $300,000 in its additional paid-in capital account. At the date of acquisition, by how much does Riley's additional paid-in capital increase or decrease? $0. $440,000 increase. $450,000 increase. $640,000 increase. $650,000 decrease.

(30,000x$25) - 300,000 -10,000= 440,000

Peter, Inc. owns 100% of The Rock Company. The book value of the Goodwill is $300,000. When Peter made its investment, The Rock had a fair value of $2,800,000. Today, the value of The Rock has fallen to $2,250,000. An appraisal of The Rock's net assets reveals a fair value of $2,075,000. How much "impairment" should Peter record related to its investment in The Rock? $550,000 $175,000 $725,000 $125,000 $0, Even though the fair value of The Rock has fallen, Goodwill is not yet impaired.

2,250,000-2,075,000=175,000 implied goodwill Carrying value $300,000 Less implied Goodwill $175,000 =impairment of $125,000

Carnes has the following account balances as of May 1, 20X1 before an acquisition transaction takes place. https://snipboard.io/zeHyA6.jpg The fair value of Carnes' Land and Buildings are $650,000 and $550,000, respectively. On May 1, 20X1, Riley Company issues 30,000 shares of its $10 par value ($25 fair value) common stock in exchange for all of the shares of Carnes' common stock. Riley paid $10,000 for costs to issue the new shares of stock. Before the acquisition, Riley has $700,000 in its common stock account and $300,000 in its additional paid-in capital account. What will be Riley's balance in its common stock account as a result of this acquisition? $300,000. $990,000. $1,000,000. $1,590,000. $1,600,000.

(30,000x10)+700,000= $1,000,000

On January 1 of the current year, Barger Company buys 150,000 shares of Booker, Inc.'s common stock for $1,200,000, the book value of the shares. This purchase gave Barger 25% ownership in Booker and the ability to significantly influence operating and financing decisions. At the time of the acquisition, Booker had a total book value of $4,800,000. During the current year, Booker reported net income of $700,000 and paid a $.85 per share dividend. Using the equity method of accounting, what is the journal entry to accrue the current year earnings? http://highered.mcgraw-hill.com/olc2/dl/940322/ch1_q3.jpg A B C D E

.25 x $700,000 D

Tara Company owns 30% of Hawkins, Inc. and applies the equity method. During the current year, Hawkins buys inventory costing $400,000 and sells it to Tara for $500,000. At the end of the year, only 25% of this merchandise is still being held by Tara. What amount of unrealized gain must be deferred by Hawkins in reporting on the equity method? $937.50 $30,000.00 $25,000.00 $7,500.00 $100,000.00

.30 ($100,000 x .25) = $7,500

Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 20X1. During 20X1, Harbor had revenues of $2,500,000 and expenses of $2,000,000. The amortization of excess cost allocations totaled $60,000 in 20X1. The non-controlling interest's share of the earnings of Harbor Corp. is calculated to be $132,000. $150,000. $168,000. $160,000. $0.

.30(2500000-2000000-60000)= 132,000

On January 1 of the year of acquisition, Ashley Inc. pays $300,000 for 60% of Marea Co.'s outstanding common stock in a purchase transaction. Marea reported common stock on that date of $250,000 with retained earnings of $100,000. Equipment, which had a ten-year remaining life, was undervalued in Marea's financial records by $20,000. During the due diligence process, it was discovered that Marea had a patent that was not on the books, but had a market value of $50,000. The patent has a useful life of 10 years. http://highered.mheducation.com/olc2/dl/940324/ch04_q7_item1.jpg What is the non-controlling interest in Mareas's second year income? $12,000 $24,000 $33,200 $36,000 $38,800

.40(90000-2000-5000)= 33,200

On January 1, Big Company acquires all of the common stock of Little Company by issuing 400,000 shares of $1 par value stock with a market value of $12 per share. Little reports earnings of $864,000 and pays dividends of $240,000 in the year of acquisition. The amortization of allocations related to the investment was $48,000. Big's net income, not including the investment, was $6,360,000, and it paid dividends of $400,000. On the consolidated financial statements, what amount is reported for Equity in Little Company's Earnings? $1,056,000 $864,000 $816,000 $240,000 0

0

On January 1 of the current year, Barger Company buys 150,000 shares of Booker, Inc.'s common stock for $1,200,000, the book value of the shares. This purchase gave Barger 25% ownership in Booker and the ability to significantly influence operating and financing decisions. At the time of the acquisition, Booker had a total book value of $4,800,000. During the current year, Booker reported net income of $700,000 and paid a $.85 per share dividend. Barger elects to use the equity method of accounting. What is the balance in the Investment in Booker account in the records of Barger Company at December 31, of the current year? $1,200,000 $1,247,500 $1,772,500 $1,900,000 $1,152,500

1,200,000 + (.25 x 700,000)-($.85 x 150,000shares) = $1,247,500

On January 1 in the year of acquisition, Cobb Enterprises purchased 80% of Bob's Bricks Inc.'s outstanding common shares. In acquiring this interest, Cobb paid a total of $1,500,000. Bob's Bricks' net assets had a book value of $1,300,000 at the time. A building with a ten-year life and a book value of $100,000 was worth $175,000. Any other excess amount was attributed to goodwill. Cobb reports net income for the first year of $350,000 (without regard for its ownership in Bob's Bricks), while Bob's Bricks has $175,000 in earnings. Using the acquisition method, what is the amount of goodwill? $515,000 $500,000 $775,000 $400,000 $320,000

1,500,000/.80=$1,875,000 FV of 100% Bricks Inc. 1875000-1300000-75000= 500000 Goodwill

10. Amie, Inc., has 100,000 shares of $2 par value stock outstanding. Prairie Corporation acquired 30,000 of Amie's shares on January 1, 2012, for $120,000 when Amie's net assets had a total fair value of $350,000. On July 1, 2015, Prairie bought an additional 60,000 shares of Amie from a single stockholder for $6 per share. Although Amie's shares were selling in the $5 range around July 1, 2015, Prairie forecasted that obtaining control of Amie would produce significant revenue synergies to justify the premium price paid. If Amie's net identifiable assets had a fair value of $500,000 at July 1, 2015, how much goodwill should Prairie report in its postcombination consolidated balance sheet? LO 4-9 a. $60,000. b. $90,000. c. $100,000. d. $-0-.

10. A Amie, Inc. fair value at July 1, 2015: 30% previously owned fair value (30,000 shares × $5) $150,000 60% new shares acquired (60,000 shares × $6) 360,000 10% NCI fair value (10,000 shares × $5) 50,000 Acquisition-date fair value $560,000 Net assets' fair value 500,000 Goodwill $60,000

11. A parent buys 32 percent of a subsidiary in one year and then buys an additional 40 percent in the next year. In a step acquisition of this type, the original 32 percent acquisition should be LO 4-9 a. Maintained at its initial value. b. Adjusted to its equity method balance at the date of the second acquisition. c. Adjusted to fair value at the date of the second acquisition with a resulting gain or loss recorded. d. Adjusted to fair value at the date of the second acquisition with a resulting adjustment to additional paid-in capital.

11. C

12. On April 1, Pujols, Inc., exchanges $430,000 fair-value consideration for 70 percent of the outstanding stock of Ramirez Corporation. The remaining 30 percent of the outstanding shares continued to trade at a collective fair value of $165,000. Ramirez's ide tifiable assets and liabilities each had book values that equaled their fair values on April 1 for a net total of $500,000. During the remainder of the year, Ramirez generates re enues of $600,000 and expenses of $360,000 and declared no dividends. On a December 31 consolidated balance sheet, what amount should be reported as noncontrolling interest? LO 4-4, 4-8 a. $219,000. b. $237,000. c. $234,000. d. $250,500.

12. B Fair value of 30% noncontrolling interest on April 1 $165,000 30% of net income for remainder of year ($240,000 × 30%) 72,000 = Noncontrolling interest December 31 $237,000

On June 1, Cline Co. paid $969,000 cash for all of the issued and outstanding common stock of Renn Corp. The carrying amounts for Renn's assets and liabilities on June 1 follow: https://snipboard.io/VjSlru.jpg On June 1, Renn's accounts receivable had a fair value of $190,000. Additionally, Renn's inprocess research and development was estimated to have a fair value of $258,000. All other items were stated at their fair values. On Cline's June 1 consolidated balance sheet, how much is reported for goodwill? $330,000 $159,000 $21,000 $95,000

159,000 https://snipboard.io/IWJVyk.jpg

2. Mittelstaedt Inc., buys 60 percent of the outstanding stock of Sherry, Inc. Sherry owns a piece of land that cost $212,000 but had a fair value of $549,000 at the acquisition date. What value should be attributed to this land in a consolidated balance sheet at the date of takeover? LO 4-2 a. $549,000. b. $337,000. c. $127,200. d. $421,800.

2. A At the date control is obtained, the parent consolidates subsidiary assets at fair value ($549,000 in this case) regardless of the parent's percentage ownership.

On January 1, 20X3, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona Inc. for $949,300 cash. At January 1, 20X3, Sedona's net assets had a total carrying amount of $652,500. Equipment (eight-year remaining life) was undervalued on Sedona's financial records by $157,600. Any remaining excess fair over book value was attributed to a customer list developed by Sedona (four-year remaining life), but not recorded on its books. Phoenix applies the equity method to account for its investment in Sedona. Each year since the acquisition, Sedona has declared a $40,000 dividend. Sedona recorded net income of $136,000 in 20X3 and $148,500 in 20X4. Selected account balances from the two companies' individual records were as follows: https://snipboard.io/831DX0.jpg What is consolidated net income for Phoenix and Sedona for 20X5? $207,500 $242,500 $163,000 $232,500

207,500 https://snipboard.io/f0qgiu.jpg

On January 1 of the year of acquisition, Ashley Inc. pays $300,000 for 60% of Marea Co.'s outstanding common stock in a purchase transaction. Marea reported common stock on that date of $250,000 with retained earnings of $100,000. Equipment, which had a ten-year remaining life, was undervalued in Marea's financial records by $20,000. During the due diligence process, it was discovered that Marea had a patent that was not on the books, but had a market value of $50,000. The patent has a useful life of 10 years. http://highered.mcgraw-hill.com/olc2/dl/940324/ch04_q8_item1.jpg On the balance sheet at the end of the second year, what amount should be reported as noncontrolling interest in Marea Co. at the end of the second year? $200,000 $341,600 $241,600 $250,000 $276,000

241,600 https://snipboard.io/Dvy8P2.jpg

Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 20X1. During 20X1, Harbor had revenues of $2,500,000 and expenses of $2,000,000. The amortization of excess cost allocations totaled $60,000 in 20X1. What is the effect of including Harbor in consolidated net income for 20X1? $350,000. $308,000. $500,000. $440,000. $290,000.

2500000-2000000-60000= 440000

3. Jordan, Inc., holds 75 percent of the outstanding stock of Paxson Corporation. Paxson currently owes Jordan $400,000 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be eliminated? LO 4-2 a. -0-. b. $100,000. c. $300,000. d. $400,000.

3. D In consolidating the subsidiary's figures, all intra-entity balances must be eliminated in their entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the parent nonetheless controls it.

On January 1 in the year of acquisition, Cobb Enterprises purchased 80% of Bob's Bricks Inc.'s outstanding common shares. In acquiring this interest, Cobb paid a total of $1,500,000. Bob's Bricks' net assets had a book value of $1,300,000 at the time. A building with a ten-year life and a book value of $100,000 was worth $175,000. Any other excess amount was attributed to goodwill. Cobb reports net income for the first year of $350,000 (without regard for its ownership in Bob's Bricks), while Bob's Bricks has $175,000 in earnings. What is the amount of controlling interest in consolidated net income? $436,000 $490,000 $457,500 $484,000 $492,500

350000+.80(175000-7500)= 484000

4. On January 1, 2014, Brendan, Inc., reports net assets of $760,000 although equipment (with a 4-year remaining life) having a book value of $440,000 is worth $500,000 and an unrecorded patent is valued at $45,000. Hope Corporation pays $692,000 on that date for an 80 percent ownership in Brendan. If the patent is to be written off over a 10-year period, at what amount should it be reported on consolidated statements at December 31, 2015? LO 4-2 a. $28,800. b. $32,400. c. $36,000. d. $40,500.

4. C An asset acquired in a business combination is initially valued at 100% acquisition-date fair value and subsequently amortized its useful life. Patent fair value at January 1, 2014 $45,000 Amortization for 2 years (10 year remaining life) (9,000) = Patent reported amount December 31, 2015 $36,000

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2020. Several of Green's accounts have been omitted. https://snipboard.io/Mnlf1C.jpg Green acquired 100% of Vega on January 1,2016, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2016, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment. Compute the December 31, 2020, consolidated trademark. $50,000. $46,875. $0. $34,375. $37,500.

50.000-Amortization(3,125 x 5)= 34,375

6. On January 1, 2014, Chamberlain Corporation pays $388,000 for a 60 percent ownership in Neville. Annual excess fair-value amortization of $15,000 results from the acquisition. On December 31, 2015, Neville reports revenues of $400,000 and expenses of $300,000 and Chamberlain reports revenues of $700,000 and expenses of $400,000. The parent figures contain no income from the subsidiary. What is consolidated net income attributable to Chamberlain Corporation? LO 4-4 a. $385,000. b. $351,000. c. $366,000. d. $400,000.

6. B Combined revenues $1,100,000 Combined expenses (700,000) Excess acquisition-date fair value amortization (15,000) Consolidated net income $385,000 Less: noncontrolling interest share ($85,000 × 40%) (34,000) Consolidated net income to Chamberlain Corporation $351,000

On January 1, Big Company acquires all of the common stock of Little Company by issuing 400,000 shares of $1 par value stock with a market value of $12 per share. Little reports earnings of $864,000 and pays dividends of $240,000 in the year of acquisition. The amortization of allocations related to the investment was $48,000. Big's net income, not including the investment, was $6,360,000, and it paid dividends of $400,000. What is the amount of consolidated net income? $6,360,000 $7,224,000 $6,600,000 $7,176,000 $6,552,000

6360000+864000-48000= 7176000

On January 1, 2013, Pride Co. purchased 90 percent of the outstanding voting shares of Star Inc. for $540,000 cash. The acquisition-date fair value of the noncontrolling interest was $60,000. At January 1, 2013, Star's net assets had a total carrying amount of $420,000. Equipment (8-year remaining life) was undervalued on Star's financial records by $80,000. Any remaining excess fair value over book value was attributed to a customer list developed by Star (4-year remaining life), but not recorded on its books. Star recorded income of $70,000 in 2013 and $80,000 in 2014. Each year since the acquisition, Star has declared a $20,000 dividend. At January 1, 2015, Pride's retained earnings show a $250,000 balance. Selected account balances for the two companies from their separate operations were as follows: Pride.....Star 2015 Revenues.....$498,000$285,000 2015 Expenses..... 350,000 195,000 7. What is consolidated net income for 2015? LO 4-4 a. $194,000. b. $197,500. c. $203,000. d. $238,000.

7. C Consideration transferred by Pride $540,000 Noncontrolling interest fair value 60,000 = Star acquisition-date fair value $600,000 - Star book value 420,000 = Excess fair over book value $180,000 Amort. to equipment (8 year remaining life) $ 80,000 $10,000 to customer list (4 year remaining life) 100,000 25,000 $35,000 Combined revenues $783,000 Combined expenses $545,000 Excess fair value amortization 35,000 580,000 Consolidated net income $203,000

On January 1, 2013, Pride Co. purchased 90 percent of the outstanding voting shares of Star Inc. for $540,000 cash. The acquisition-date fair value of the noncontrolling interest was $60,000. At January 1, 2013, Star's net assets had a total carrying amount of $420,000. Equipment (8-year remaining life) was undervalued on Star's financial records by $80,000. Any remaining excess fair value over book value was attributed to a customer list developed by Star (4-year remaining life), but not recorded on its books. Star recorded income of $70,000 in 2013 and $80,000 in 2014. Each year since the acquisition, Star has declared a $20,000 dividend. At January 1, 2015, Pride's retained earnings show a $250,000 balance. Selected account balances for the two companies from their separate operations were as follows: Pride.....Star 2015 Revenues.....$498,000$285,000 2015 Expenses..... 350,000 195,000 LO 4-4 8. Assuming that Pride, in its internal records, accounts for its investment in Star using the equity method, what is Pride's share of consolidated retained earnings at January 1, 2015? LO 4-4 a. $250,000. b. $286,000. c. $315,000. d. $360,000.

8. A Under the equity method, consolidated RE = parent's RE.

On January 4, 20X2, Harley, Inc. acquired 40% of the outstanding common stock of Bike Co. for $2,400,000. This investment gave Harley the ability to exercise significant influence over Bike. Bike's assets on that date were recorded at $10,500,000 with liabilities of $4,500,000. There were no other differences between book and fair values. During 20X2, Bike reported net income of $500,000. For 20X3, Bike reported net income of $800,000. Dividends of $300,000 were paid in each of these two years. How much income did Harley report from Bike for 20X3? $120,000. $200,000. $300,000. $320,000. $500,000.

800,000 x 40%= 320,000

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2020. Several of Green's accounts have been omitted. https://snipboard.io/hGceIw.jpg Green acquired 100% of Vega on January 1,2016, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2016, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment. Compute the December 31, 2020, consolidated revenues. $1,400,000. $800,000. $500,000. $1,590,375. $1,390,375.

900,000+500,000= 1,400,000

In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true? Negative goodwill is recorded. A deferred credit is recorded. A gain on bargain purchase is recorded. Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as a deferred credit. Long-term assets and liabilities of the acquired company are reduced in proportion to their fair values. Any excess is recorded as an extraordinary gain.

A gain on bargain purchase is recorded.

A company has been using the equity method to account for its investment. The company sells shares and does not continue to have significant control. Which of the following statements is true? A cumulative effect change in accounting principle must occur. A prospective change in accounting principle must occur. A retrospective change in accounting principle must occur. The investor will not receive future dividends from the investee. Future dividends will continue to reduce the investment account.

A prospective change in accounting principle must occur.

What is a downstream sale? A sale from an investor to its investee A sale from a producer to its outside supplier A sale from an investee to its investor A sale from one manufacturer to another A sale from a small company to a large one

A sale from an investor to its investee

An example of a difference in types of business combination is: A statutory merger can only be effected by an asset acquisition while a statutory consolidation can only be effected by a capital stock acquisition. A statutory merger can only be effected by a capital stock acquisition while a statutory consolidation can only be effected by an asset acquisition. A statutory merger requires dissolution of the acquired company while a statutory consolidation does not require dissolution. A statutory consolidation requires dissolution of the acquired company while a statutory merger does not require dissolution. Both a statutory merger and a statutory consolidation can only be effected by an asset acquisition but only a statutory consolidation requires dissolution of the acquired company.

A statutory merger requires dissolution of the acquired company while a statutory consolidation does not require dissolution.

On January 1, Puckett Company paid $2.04 million for 68,000 shares of Harrison's voting common stock, which represents a 40 percent investment. No allocation to goodwill or other specific account was made. Significant influence over Harrison is achieved by this acquisition and so Puckett applies the equity method. Harrison distributed a dividend of $2 per share during the year and reported net income of $627,000. What is the balance in the Investment in Harrison account found in Puckett's financial records as of December 31? $2,531,000 $2,236,400 $2,154,800 $2,290,800

Acquisition price = $2,040,000 Equity income ($627,000 × 40%) = 250,800 Dividends (68,000 shares × $2) = (136,000) Investment in Harrison Corporation as of December 31 $2,154,800

In January 20X4, Domingo, Inc., acquired 20 percent of the outstanding common stock of Martes, Inc., for $761,000. This investment gave Domingo the ability to exercise significant influence over Martes. Martes's assets on that date were recorded at $4,095,000 with liabilities of $935,000. Any excess of cost over book value of the investment was attributed to a patent having a remaining useful life of 10 years. In 20X4, Martes reported net income of $232,000. In 20X5, Martes reported net income of $285,500. Dividends of $96,000 were declared in each of these two years. What is the equity method balance of Domingo's Investment in Martes, Inc., at December 31, 20X5?

Acquisition price = $761,000 Income accruals: 20X4 - $232,000 × 20% = 46,400 20X5 - $285,500 × 20% = 57,100 Amortization (see below): 20X4 = (12,900) Amortization: 20X5 = (12,900) Dividends: 20X4-$96,000 × 20% = (19,200) 20X5-$96,000 × 20% = (19,200) Investment in Martes, December 31, 20X5 = $800,300 --- Acquisition price = $761,000 Acquired net assets of Martes ($3,160,000 × 20%) = (632,000) Excess cost to patent = $129,000 Annual amortization (10 year life) = $12,900

Under the partial equity method of accounting for an investment, The investment account remains at initial value. Dividends received are recorded as revenue. The allocations for excess fair value allocations over book value of net assets at date of acquisition are applied over their useful lives to reduce the investment account. Amortization of the excess of fair value allocations over book value is ignored in regard to the investment account. Dividends received increase the investment account.

Amortization of the excess of fair value allocations over book value is ignored in regard to the investment account.

Where is the noncontrolling interest on the consolidated balance sheet reported? As a line between noncurrent liabilities and stockholder's equity. As part of stockholder's equity. As a noncurrent asset. As a noncurrent liability This account is eliminated during the consolidation process.

As part of stockholder's equity.

On January 1, 20X4, McGuire Company acquired 90 percent of the fair value of Hogan Company for $234,000 cash. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: https://snipboard.io/SEYRe1.jpg Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. In consolidation at December 31, 20X5, what net adjustment is necessary for Hogan's Patent account? $4,200. $5,500. $8,000. $6,600. No adjustment is necessary.

Attributed FV Patent $11,000-amortization for 20X4 and 20X5 $4,400= $6,600

On January 1, 20X4, McGuire Company acquired 90 percent of the fair value of Hogan Company for $234,000 cash. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: https://snipboard.io/SEYRe1.jpg Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. In consolidation at December 31, 20X4, what net adjustment is necessary for Hogan's Patent account? $5,600. $8,800. $7,000. $7,700. No adjustment is necessary.

Attributed FV patent $11,000-amortization for 20X4 of $2,200= $8,800

9. James Company acquired 85 percent of Mark-Right Company on April 1. On its December 31 consolidated income statement, how should James account for Mark-Right's revenues and expenses that occurred before April 1? LO 4-8 a. Include 100 percent of Mark-Right's revenues and expenses and deduct the preacquisition portion as noncontrolling interest in net income. b. Exclude 100 percent of the preacquisition revenues and 100 percent of the preacquisition expenses from their respective consolidated totals. c. Exclude 15 percent of the preacquisition revenues and 15 percent of the preacquisition expenses from consolidated expenses. d. Deduct 15 percent of the net combined revenues and expenses relating to the preacquisition period from consolidated net income.

B

On January 1, two years ago, Parkway Corporation purchased all of the outstanding common stock of Shaw Company for $220,000 cash. On that date, Shaw's net assets had a book value of $148,000. Equipment with an 8-year life was undervalued by $20,000 in Shaw's financial records. Shaw has a database that is valued at $52,000 and will be amortized over ten years. Shaw reported net income of $25,000 in the year of acquisition and $32,500 in the following year. Dividends of $2,500 were declared and paid in each of those two years. The third year of operations is now complete. For each of the two companies, selected account balances as of December 31 for this third year are as follows: http://highered.mheducation.com/olc2/dl/940323/ch03_q1_item1.jpg For each of the three methods discussed in the chapter, what should be the Investment in Shaw Company account balance in the records of Parkway Corporation at December 31 of the third year? http://highered.mcgraw-hill.com/olc2/dl/940318/ch3_q1.jpg A B C D E

B

In measuring non-controlling interest at the date of acquisition, which of the following would not be indicative of the value attributed to the non-controlling interest? Fair value based on stock trades of the acquired company. Subsidiary cash flows discounted to present value. Book value of subsidiary net assets. Projections of residual income. Consideration transferred by the parent company that implies a total subsidiary value.

Book value of subsidiary net assets.

TunaCo purchases 25% of Stanley, Inc. on January 1 of the current year for $500,000. This acquisition gives TunaCo the ability to apply significant influence to Stanley's operating and financing policies and TunaCo elects to use the equity method of accounting. Stanley reports assets on that date of $1,600,000 with liabilities of $400,000. One building with a 15-year life has a book value of $100,000 and a fair market value of $400,000. During the current year, Stanley reports net income of $140,000 while paying dividends of $70,000. What is the Investment in Stanley account balance in TunaCo's accounting records at the end of the current year? $500,000 $517,500 $530,000 $460,000 $512,500

Building: FMV-BV= $300,000 x .25 =75,000/15 yrs.= 5,000 annual amortization Investment Account: Jan 1 $500,000 Plus NI 140,000 x .25= 35,000 Less Amortization -5,000 Less Dividend 70,000 x.25=-17,500 EOY Investment 512,500

5. The noncontrolling interest represents an outside ownership in a subsidiary that is not attributable to the parent company. Where in the consolidated balance sheet is this outside ownership interest recognized? LO 4-6 a. In the liability section. b. In a mezzanine section between liabilities and owners' equity. c. In the owners' equity section. d. The noncontrolling interest is not recognized in the consolidated balance sheet.

C

On January 1, 20X3, Jackie Corp. purchased 30% of the voting common stock of Rob Co., paying $2,000,000. Jackie properly accounts for this investment using the equity method. At the time of the investment, Rob's total stockholders' equity was $3,000,000. Jackie gathered the following information about Rob's assets and liabilities whose book values and fair values differed: https://snipboard.io/th7m01.jpg Any excess of cost over fair value was attributed to goodwill, which has not been impaired. Rob Co. reported net income of $300,000 for 20X3, and paid dividends of $100,000 during that year. How much goodwill is associated with this investment? $(500,000.) $0. $650,000. $1,000,000. $2,000,000.

Differences FV vs. BV 500,000 bldgs+500,000 Equip+500,000 Franchise =1,500,000 FV>BV x 30%=450,000 identified 1.100,000 Total > BV - 450,000 identified= 650,000 Unidentified aka Goodwill

Direct combination costs and stock issuance costs are often incurred in the process of making a controlling investment in another company. Using the acquisition method, how should those costs be accounted for in a purchase transaction? http://highered.mheducation.com/olc2/dl/940321/ch02_q15.jpg A B C D E

E

When a company applies the partial equity method in accounting for its investment in a subsidiary and initial value, book values, and fair values of net assets acquired are all equal, what consolidation worksheet entry would be made? https://snipboard.io/67wapC.jpg A above B above C above D above E above

E above

On January 1, 20X4, McGuire Company acquired 90 percent of the fair value of Hogan Company for $234,000 cash. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: https://snipboard.io/SEYRe1.jpg Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. In consolidation at January 1, 20X4, what adjustment is necessary for Hogan's Equipment account? $4,000 increase. $4,000 decrease. $3,600 increase. $3,600 decrease. No adjustment is necessary.

FV $18,000 - BV $14,000= Increase $4,000

On January 1, 20X4, McGuire Company acquired 90 percent of the fair value of Hogan Company for $234,000 cash. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: https://snipboard.io/SEYRe1.jpg Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. In consolidation at December 31, 20X5, what adjustment is necessary for Hogan's Land account? $7,000 decrease. $7,000 increase. $6,300 increase. $6,300 decrease. No adjustment is necessary.

FV Differential at Acquistion $7,000-no amortization= $7,000 increase

On January 1, 20X4, McGuire Company acquired 90 percent of the fair value of Hogan Company for $234,000 cash. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: https://snipboard.io/SEYRe1.jpg Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. In consolidation at December 31, 20X4, what adjustment is necessary for Hogan's Land account? $8,000 decrease. $7,000 increase. $6,300 increase. $6,300 decrease. No adjustment is necessary.

FV differential at Acquisition $7,000-no amortization= $7,000 increase

When a parent uses the initial value method throughout the year to account for its investment in an acquired subsidiary, which of the following statements is true before making adjustments on the consolidated worksheet? Parent company net income equals consolidated net income. Parent company retained earnings equals consolidated retained earnings. Parent company total assets equals consolidated total assets. Parent company dividends equal consolidated dividends. Goodwill needs to be recognized on the parent's books.

Parent company dividends equal consolidated dividends.

The entry to convert from the initial value method to the equity method usually involves a debit to Investment in Subsidiary account and a credit to what account? Subsidiary's end of the year Retained Earnings Parent's end of the year Retained Earnings Subsidiary's beginning of the year Retained Earnings Parent's beginning of the year Retained Earnings No entry is needed

Parent's beginning of the year Retained Earnings

Emmy Company buys 30% of Soupy, Inc's common stock on January 1 of the current year for $440,000. The equity method of accounting is used. Soupy's net assets on that date totaled $1,100,000. Soupy immediately begins selling inventory to Emmy as follows: http://highered.mcgraw-hill.com/olc2/dl/940322/ch1_q10.jpg Inventory held at the end of one year is sold at the beginning of the next. Soupy reports net income of $110,000 in the first year and $150,000 in the second year while paying $50,000 in dividends each year. What should Emmy Company report as Equity in Soupy's Income at the end of the second year? $45,000 $33,000 $37,200 $49,200 $52,800

Share of CY Net Income (.30 x 150,000)= 45,000 Reversal of Prior year GP deferral (.58333 x24,000 x.30)= 4,200 Record CY GP Deferral (.50 x 80,000 x .30) = -12,000 = Total Equity Income in Soup Y2 37,200

Q2 Parks, Inc. paid $10 per share for 80,000 of the 100,000 shares of KO, Inc, when KO's net assets had a total fair value of $950,000. During the weeks before and after this acquisition, the shares of KO, Inc. have traded for $9 per share. How much goodwill should Parks report in its post-combination consolidated balance sheet? A) $24,000 B) $30,000 C) $50,000 D) $120,000 E) $150,000 Feedback: Learning Objective: 04-03 Difficulty: Easy Bloom's: Apply AACSB: Analytic AICPA BB: Critical Thinking

b (80,000x$10=800,000)+(20,000x$9)= Total acquisition business fair value-Fair value of net identifiable assets $950,000= Goodwill $30,000

Q4 On January 1 in the year of acquisition, Cobb Enterprises purchased 80% of Bob's Bricks Inc.'s outstanding common shares. In acquiring this interest, Cobb paid a total of $1,500,000. Bob's Bricks' net assets had a book value of $1,300,000 at the time. A building with a ten-year life and a book value of $100,000 was worth $175,000. Any other excess amount was attributed to goodwill. Cobb reports net income for the first year of $350,000 (without regard for its ownership in Bob's Bricks), while Bob's Bricks has $175,000 in earnings. Using the acquisition method, what is the amount of goodwill? A) $515,000 B) $500,000 C) $775,000 D) $400,000 E) $320,000 Feedback: Learning Objective: 04-03 Difficulty: Medium Bloom's: Apply AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement

b Basic information derived from this item follows: Book value of Bob's Bricks = $1,300,000 Fair market value of Bob's Bricks' net assets* = $1,375,000 Implied value of Bob's Bricks ($1,500,000 ÷ 80%) = $1,875,000 *includes the adjustment for the buildings.

Norbin Company uses the equity method to account for its investment in Stice Company's common stock. After the acquisition date, the investment account reported on Norbin's balance sheet would: be increased by Norbin's share of Stice's earnings and decreased by Norbin's share of Stice's losses. be increased by Norbin's share of Stice's earnings but not be affected by Norbin's share of Stice's losses. not be affected by Norbin's share of Stice's earnings and losses. not be affected by Norbin's share of Stice's earnings but be decreased by Norbin's share of Stice's losses. be decreased by Norbin's share of Stice's earnings and increased by Norbin's share of Stice's losses.

be increased by Norbin's share of Stice's earnings and decreased by Norbin's share of Stice's losses.

Q6 On January 1 in the year of acquisition, Cobb Enterprises purchased 80% of Bob's Bricks Inc.'s outstanding common shares. In acquiring this interest, Cobb paid a total of $1,500,000. Bob's Bricks' net assets had a book value of $1,300,000 at the time. A building with a ten-year life and a book value of $100,000 was worth $175,000. Any other excess amount was attributed to goodwill. Cobb reports net income for the first year of $350,000 (without regard for its ownership in Bob's Bricks), while Bob's Bricks has $175,000 in earnings. What value should be attributed to the building in a consolidated balance sheet at the date of the business combination? A) $140,000 B) $128,000 C) $155,000 D) $160,000 E) $175,000 Feedback: Learning Objective: 04-05 Difficulty: Easy Bloom's: Apply AACSB: Analytic AICPA BB: Critical Thinking

e Book value of building.............$100,000 Allocation based on FV................75,000 = Consolidated Value ..................$175,000

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination? initial value or book value. initial value, lower-of-cost-or-market-value, or equity. initial value, equity, or partial equity. initial value, equity, or book value. initial value, lower-of-cost-or-market-value, or partial equity.

initial value, equity, or partial equity.

A basic premise of the acquisition method is that the: ultimate objective of consolidated financial statements is to serve as a report to the stockholders of the parent company. subsidiary's book value and the purchase price paid by the parent are viewed as separate elements that can be accounted for individually within the consolidation process. subsidiary's individual accounts cannot be divided along ownership lines. values utilized for consolidation reflect the parent's payment attributed to each subsidiary asset and liability. controlled company must always be consolidated in phases depending on the parent's level of ownership.

subsidiary's individual accounts cannot be divided along ownership lines.

A company acquires a 25% investment in another corporation. The reporting of this investment depends primarily on: the percentage of ownership. the length of time that the investor intends to own the investment. technology dependency. material intercompany transactions. the degree of influence that the investor has over the investee.

the degree of influence that the investor has over the investee.