Chapter 4
Select all that apply When a parent applies the initial value method to account for its Investment in Subsidiary account, Consolidation Entry asterisk C provides which of the following adjustments to accrual accounting?
An adjustment to the parent's RE for its share of the change in subsidiary RE from acquisition date to the beginning of the current period. An adjustment to the parent's RE for its share of excess fair value amortizations from acquisition date to the beginning of the current period.
Select all that apply Why are two separate consolidation entries (A1 and A2) useful when the parent has paid a control premium for its controlling, but partial interest in a subsidiary?
Because the presence of a control premium affects primarily the parent shares. Because the unamortized acquisition-date excess fair values are allocated proportionately across ownership interests. Because goodwill is not allocated proportionately across the ownership interests.
A Company establishes control with its most recent of a series of purchases of Company B's voting stock. What are the valuation implications for Company A's investment in Company B as of the date control is obtained?
Company B will be valued in total at its control-date fair value.
A parent sells a portion of its investment in a subsidiary company. Following the sale, if the parent nonetheless maintains control over its former subsidiary, what is the appropriate accounting for the parent's retained investment?
Consolidated financial statements.
A parent paid a control premium in acquiring an 80% voting interest in a subsidiary. How is the goodwill from the combination allocated across the controlling and noncontrolling interests?
Controlling and noncontrolling interest acquisition-date fair values are compared to relative fair values of subsidiary's identifiable net assets.
Select all that apply As part of the consolidation process which of the following are included in the calculation of the ending balance of the noncontrolling interest?
Dividends from the subsidiary attributable to the noncontrolling interest. The consolidated entity's net income attributable to the non-controlling interest. The balance of the noncontrolling interest as of the beginning of the period.
Select all that apply Examining the Exhibit 4.6 consolidation worksheet when the parent accounts for its 80% owned subsidiary using the equity method, what balances that occur on the parent's (King Company) column are brought to zero via consolidation entries?
Equity in Pawn's earnings Investment in Pawn Company
A parent sells a portion of its investment in a subsidiary company. Following the sale, if the parent loses control but retains significant influence over its former subsidiary, what is the appropriate accounting for the parent's retained investment?
Equity method of investment accounting.
Consolidation Entry A2 focuses on valuation and allocation of which of the following accounts?
Goodwill only.
A parent sells a portion of its investment in a subsidiary company. Following the sale, if the parent maintains neither control nor significant influence over its former subsidiary, what is the appropriate accounting for the parent's retained investment?
Market-value method.
Select all that apply What amounts comprise the ending balance of the noncontrolling interest reported in the stockholders' equity section of the consolidated balance sheet?
Net income attributable to the noncontrolling interest Subsidiary dividends attributable to the noncontrolling interest The noncontrolling interest beginning of the year balance
Select all that apply When a business acquisition resulting in control takes place midyear, how is the consolidation process affected?
Only post-acquisition subsidiary revenues are included in consolidated totals. Only post-acquisition subsidiary expenses are included in consolidated totals. Subsidiary book value must be computed as of the acquisition date.
Select all that apply Company A owns a 40% equity method investment in Company B. Subsequently, Company A acquires a controlling interest in a Company B and now must prepare consolidated financial statements. If the date Company A obtains control occurs midyear, how are subsidiary revenues and expenses reported in consolidated income statement in the year of the business combination?
Preacquisition subsidiary revenues and expenses are excluded from consolidated revenues and expenses. Postacquisition subsidiary revenues and expenses are included in consolidated revenues and expenses.
When the parent applies the equity method, which of the following balances are the same across the parent company accounts and consolidated balances?
Retained earnings.
Select all that apply Consolidation Entry S eliminates 100% of the subsidiary's beginning-of-the-period stockholders' equity accounts. In the presence of a noncontrolling interest, to what accounts is the total elimination allocated?
The Investment in Subsidiary The Noncontrolling Interest.
Select all that apply The beginning balance of the noncontrolling interest (NCI) can be viewed as the NCI's ownership share multiplied by the sum of which of the following two components?
The book value of the subsidiary as of the beginning of the period. The unamortized excess acquisition-date subsidiary fair over book value as of the beginning of the period.
How does Consolidation Entry A1 allocate the unamortized excess acquisition-date fair over book value for the subsidiary's identifiable asset and liabilities to the noncontrolling interest?
The excess unamortized acquisition-date fair value is allocated to the noncontrolling interest using their percentage ownership in the subsidiary.
Which of the following accounting treatment applies when a parent sells enough of its subsidiary's shares so that it no longer possesses control over the subsidiary?
The parent recognizes either a gain or loss on the shares sold.
Company A obtains control over Company B in a step acquisition. Upon achieving control, how does a parent account for its previous noncontrolling interest in Company B?
The parent's previously held noncontrolling interest is adjusted to fair value and a gain or loss is recognized.
Select all that apply Following a sale, when a parent retains only a non-controlling portion of its former subsidiary's shares, what accounting is appropriate for the retained investment?
The retained investment is revalued to fair value as of the date control is lost. A gain or loss is recognized on the revaluation of the retained investment to fair value.
Select all that apply What accounting treatment applies when a parent sells some of its subsidiary's shares, but nonetheless retains control over the subsidiary?
The sale of the subsidiary shares is considered a transaction within the consolidated entity. The parent recognizes any difference between the proceeds and the underlying carrying amount of the shares sold as an adjustment to APIC.
True or false: During the current year Company A acquires additional shares of Company B stock increasing its 20% equity method investment to a 90% controlling interest. In its consolidated financial statements for the current year, Company A will report equity method income for its preacquisition ownership of Company B.
True
True or false: IFRS accounting standards for the noncontrolling interest allow an initial measurement option, whereas US GAAP allows no initial measurement option.
True
True or false: Regardless of whether a parent obtains control in a single or multiple steps, the subsidiary's assets and liabilities are revalued in the entirety to fair value at the date control is obtained.
True
Select all that apply For an 80% owned subsidiary accounted for under the equity method, the parent includes in the Investment in Subsidiary account balance
a deduction for 80% of subsidiary dividends declared since acquisition. 80% of post-acquisition subsidiary earnings adjusted for excess acquisition-date fair value amortizations.
In periods subsequent to acquisition, noncontrolling (NCI) interest valuation in consolidated financial reports is based on
acquisition-date fair value adjusted for the NCI's share of post-acquisition adjusted subsidiary net income less dividends.
When a parent acquires additional shares in its controlled subsidiary from the noncontrolling interest, any excess of the consolidated book value of these shares over the price paid by the parent is recorded as
an increase in the parent's additional paid-in capital.
A noncontrolling interest in a consolidated entity may be described as
an ownership interest in a subsidiary held by owners other than the parent company.
Select all that apply Once a parent achieves control over its subsidiary, subsequent purchases of noncontrolling interest shares
are considered equity transactions with any difference between carrying amount and purchase price allocated to additional paid-in capital. do not affect the overall valuation basis of the subsidiary for consolidated financial reporting.
When a parent achieves ownership of a subsidiary through a series of stock acquisitions, the subsidiary's measurement basis for consolidated reporting is determined at the date the parent obtains (1).
control
Select all that apply The allocation of goodwill across the controlling and noncontrolling interests
does not always result in an allocation proportional to percentage ownership interests. compares acquisition date total fair values to the relative (proportional) fair values of the subsidiary's identifiable net assets.
When a parent pays a control premium in a less-than-100% acquisition,
more goodwill will be allocated to the parent than to the noncontrolling interest relative to their proportionate ownership percentages.
Consolidation Entry A adjusts subsidiary assets and liabilities for any excess acquisition-date excess fair over book values. The Consolidation Entry A adjustment to the subsidiary's assets and liabilities is net of
previous period's excess fair over book value amortizations.
The amount for the noncontrolling interest is reported in the consolidated balance sheet in the
shareholders' equity section.
Select all that apply Which of the following are reasons for one company to gain control over another with less than 100% ownership?
some outside owners of the subsidiary company may have been unwilling to sell their shares. the parent firm may not have resources sufficient to acquire all of its subsidiary shares. the laws of some countries prevent complete ownership by a foreign firm.
Consolidated retained earnings equal the parent's retained earnings when the parent accounts for its Investment in Subsidiary using
the equity method.
Select all that apply When a parent acquires a controlling, but less-than-100% interest in a subsidiary, the basic elements for establishing an acquisition-date subsidiary value include
the fair value of the noncontrolling interest. the fair value of the controlling interest.
Select all that apply Under IFRS accounting standards, the initial accounting valuation for the noncontrolling interest may be measured utilizing
the noncontrolling interest share of the subsidiary's net identifiable assets. an amount that excludes goodwill for the noncontrolling interest. the acquisition-date fair value.
When the parent company employs the initial value method for its Investment in Subsidiary account, Entry (1) is unnecessary.
1. D
In Exhibit 4.6, the amount of net income that is included in the 12/31 consolidated retained earnings balance is the net income attributable to (1) Company.
1. King
When a parent company obtains control of its subsidiary at a midyear date, the parent includes in consolidated totals subsidiary revenues and expenses only subsequent to the (1) date.
1. control
The relevant criterion for the requirement to prepare consolidated financial statements is whether one company (1) the decision-making process of another company.
1. controls
The ending balance of the noncontrolling interest reported in a consolidated balance sheet includes a beginning balance, a portion of consolidated income, and a deduction for subsidiary (1) attributable to the noncontrolling interest.
1. dividends
Following the (1) (2) concept, a parent includes 100% of a subsidiary's net income in consolidated net income even when the parent owns less than 100% of its controlled subsidiary's voting stock.
1. economic 2. unit
Despite the fact that 100% of a controlled subsidiary's assets and liabilities are consolidated with those of a parent in consolidation, only the parent's percentage ownership is used for internal accounting under the (1) method for subsidiary income accruals.
1. equity
When a parent company acquires additional shares of an already controlled subsidiary, the acquisition is accounted for as an (1) transaction.
1. equity
According to the acquisition method, the noncontrolling interest valuation includes its share of the acquistion-date (1) value of the subsidiary's identifiable net assets adjusted for post-acquisition amortization.
1. fair
At the date of a business acquisition, the parent values any noncontrolling interest shares at (1) value.
1. fair
Company A establishes control with its most recent of a series of purchases of Company B's voting stock bring its ownership to 80%. The remaining 20% noncontrolling interest in Company B is valued at its estimated (1) value as of the date Company A establishes control.
1. fair
Following a sale, when a parent retains only a non-controlling portion of its former subsidiary's shares, the retained investment is revalued to (1) value as of the date control is lost.
1. fair
As long as control is maintained, when a parent sells a portion of its ownership shares in its subsidiary, no (1) or (2) is recognized in consolidated income.
1. gain 2. loss
Consolidation Entry A2 is required when (1) is disproportionately allocated to the parent and noncontrolling ownerships.
1. goodwill
When the sum of the acquisition-date fair values of the controlling and non-controlling interests exceeds the collective acquisition-date fair values of the subsidiary's identifiable net assets, then the acquiring company recognizes (1).
1. goodwill
In consolidated financial reports, the (1) (2) represents a set of owners, in addition to the parent company, who have a legal claim to the subsidiary's net assets.
1. noncontrolling 2. interest
A primary difference between a single-step and multiple-step consolidation in the year control is obtained is the presence of a gain or loss on (1) to fair value of the parent's previously owned investments in the subsidiary. (Enter only one word per blank.)
1. revaluation
In periods subsequent to an acquisition, how is consolidated net income generally computed in the presence of a 20% noncontrolling interest?
100% of the parent's net income plus 100% of the subsidiary's net income adjusted for excess acquisition-date fair value amortizations.
A parent company owns 80% of the voting stock of a subsidiary. What percentage of the total beginning subsidiary's stockholders' equity elimination should Consolidation Entry S allocate to the noncontrolling interest?
20%
A parent company owns 80% of the voting stock of a subsidiary. What percentage of the total excess fair value net adjustment should Consolidation Entry A allocate to the noncontrolling interest?
20%