Exam 2 - Advanced Accounting

A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the initial value method. Why might the company have made this decision?

It is a relatively easy method to apply.

A company acquires a subsidiary and will prepare consolidated financial statements for external reporting purposes. For internal reporting purposes, the company has decided to apply the equity method. Why might the company have made this decision?

Operating results appearing on the parent's financial records reflect consolidated totals.

The combined credit to the noncontrolling interests in Consolidation Entries S and A equal the total balance of the noncontrolling interest as of the ____________ of the period

beginning

What is a basic premise of the acquisition method regarding accounting for a noncontrolling interest?

A subsidiary is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership.

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

Adjusted to fair value at the date of the second acquisition with a resulting gain or loss recorded.

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?

Exclude 100 percent of the preacquisition revenues and 100 percent of the preacquisition expenses from their respective consolidated totals.

When should a consolidated entity recognize a goodwill impairment loss?

If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying amounts.

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?

In the owners' equity section.

McKinley, Inc., owns 100 percent of Jackson Company's 45,000 voting shares. On June 30, McKinley's internal accounting records show a $192,000 equity method adjusted balance for its investment in Jackson. McKinley sells 15,000 of its Jackson shares on the open market for $80,000 on June 30. How should McKinley record the excess of the sale proceeds over its carrying amount for the shares?

Increase its additional paid-in capital by $16,000.

If no legal, regulatory, contractual, competitive, economic, or other factors limit the life of an intangible asset, the asset's assigned value is allocated to expense over which of the following?

Indefinitely (no amortization) with an annual impairment review until its life becomes finite.

Dosmann, Inc., bought all outstanding shares of Lizzi Corporation on January 1, 2016, for $880,000 in cash. This portion of the consideration transferred results in a fair-value allocation of $36,600 to equipment and goodwill of $101,700. At the acquisition date, Dosmann also agrees to pay Lizzi's previous owners an additional $147,000 on January 1, 2018, if Lizzi earns a 10 percent return on the fair value of its assets in 2016 and 2017. Lizzi's profits exceed this threshold in both years. Which of the following is true?

The fair value of the expected contingent payment increases goodwill at the acquisition date.

Which of the following items enter into the computation of net income attributable to the noncontrolling interest?

The subsidary's net income The noncontrolling interest's ownership percentage in the subsidiary Excess acquisition-date fair value amortizations

For financial reporting purposes, the acquisition method views a parent company and its controlled, but less than 100% owned, subsidiary as

a single economic unit

In periods subsequent to acquisition, non-controlling (NCI) interest valuation in consolidated.

acquisition-date fair value adjusted for the NCI's share of post-acquisition adjusted subsidiary net income less dividends

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 overall valuation basis of the subsidiary for consolidated financial reporting.

The relevant criterion for the requirement to prepare consolidated financial statements is whether one company________________the decision-making process of another company

controls

The allocation of goodwill across the controlling and noncontrolling interests

does not always result in an allocation proporational to percentage ownerhip intrests compares acquisition date total fair values to the relative (proporational) fair values of the subsidiary's identifiable net assets

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 _______method for subsidiary income accruals.

equity

Regardless of its percentage ownership, when a parent acquires control over a subsidiary, the parent must recognize the 100% of the subsidiary assets and liabilities at their acquisition-date _______ values

fair

Consolidated net income attributable to the parent company owners may be computed as consolidated net income less net income attributable to the

noncontrolling interest

On a consolidation worksheet, the noncontrolling interest's share of subsidiary dividends declared

serve to reduce the noncontrolling interest balance.

Consolidated retained earnings equal the parent's retained earnings when the parent account for its investment in subsidary using.

the equity method

the beginning balance of the noncontrolling interest can be viewed as the NCI's ownership share multiplied by the sum of which of the following two components?

the unamortized excess acquistion-date subsidiary fair over book value as the beginning of the period the book value of the subsidiary as the beginning of the period

Consolidation Entry E does not vary depending on the percentage of the controlled subsidiary owned by the parent.

true

Goodwill recognized in a business combination must be allocated among a firm's identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount, which of the following is true?

A goodwill impairment loss is recognized for the excess of a reporting unit's carrying amount over its fair value, not to exceed the carrying amount of goodwill.

Paar Corporation bought 100 percent of Kimmel, Inc., on January 1, 2015. On that date, Paar's equipment (10-year remaining life) has a book value of $420,000 but a fair value of $520,000. Kimmel has equipment (10-year remaining life) with a book value of $272,000 but a fair value of $400,000. Paar uses the equity method to record its investment in Kimmel. On December 31, 2017, Paar has equipment with a book value of $294,000 but a fair value of $445,200. Kimmel has equipment with a book value of $190,400 but a fair value of $357,000. The consolidated balance for the Equipment account as of December 31, 2017 is $574,000. What would be the impact on consolidated balance for the Equipment account as of December 31, 2017 if the parent had applied the initial value method rather than the equity method?

No effect: The method the parent uses is for internal reporting purposes only and has no impact on consolidated totals.