ACCT 530 Advance Financial Accounting

How is the amount assigned to the noncontroling interest normally determined when a consolidated balance sheet is prepared immediately after a business combination>

The balance assigned to the noncontrolling interest is based on the fair value of the noncontrolling interest at the date of acquisition.

Why must a noncontrolling interest be reported in the consolidated balance sheet?

The consolidated balance sheet always includes 100 percent of the subsidiary's assets and liabilities. When the parent holds less than 100 percent ownership of the subsidiary, the noncontrolling interest's claim on those net assets must be reported. The balance sheet will not balance without this additional amount.

Intercompany income statement accounts are eliminated in consolidation because they are deemed to be a.artificial transactions. b.potentially manipulative transactions. c.internal transactions. d.at amounts that are not determined on arms-length basis. e.None of the above.

internal transactions.

Why must the consolidated entries be entered in the consolidation worksheet each time consolidated statements are prepared?

The consolidation entries are recorded only in the consolidation worksheet and therefore do not change the balances recorded on the company's books. Each time consolidated statements are prepared the balances reported on the company's books serve as the starting point. Thus, all the necessary consolidation entries must be entered in the consolidation worksheet each time consolidated statements are prepared.

How do the consolidation entries differ in a bargain purchase scenario from an acquisition at an amount greater than book value? a. The differential is ignored in a bargain-purchase scenario. b. The parent company multiplies all numbers by −1. c. The consolidation entry to reclassify expenses related to the differential increases reported expenses rather than decreases them. d. The consolidation entries do not change in a bargain purchase scenario.

The consolidation entries do not change in a bargain purchase scenario.

Under which concept is goodwill assigned to the noncontrolling interest for consolidated financial reporting purposes? a. The entity concept. b. The parent company concept. c. Both a and b. d. None of the above.

The entity concept.

When a parent company uses the equity method to account for investments, the controlling interest in consolidated net income includes all of the following except: a. The parent's income from its own operations. b. The parent company's share of income from consolidated sub. c. The non-controlling interest's share of income from consolidated sub. d. Differential adjustments.

The non-controlling interest's share of income from consolidated sub.

How is the beginning-of-period noncontrolling interest balance determined?

The noncontrolling interest at a point in time is equal to its fair value on the date of combination, adjusted to date for a proportionate share of the undistributed earnings of the subsidiary and the noncontrolling interest's share of any write-off of differential. Another approach to determining the noncontrolling interest at a point in time is to add the remaining differential at that time to the subsidiary's common stockholders' equity and multiply the result by the noncontrolling interest's proportionate ownership interest in the subsidiary. (However, this is only true if the goodwill is proportionate between the controlling and noncontrolling shareholders.)

What effect does a negative retained earnings balance on the sub's books have on consolidation procedures?

The only effect of a negative balance in retained earnings is the need for a credit to subsidiary retained earnings, rather than a debit to retained earnings, when the stockholders' equity accounts of the subsidiary and the investment account of the parent are eliminated.

What portion of other comprehensive income reported by a sub is included in the consolidated statement of comprehensive income as accruing to parent company shareholders?

The parent's portion of the subsidiary's other comprehensive income is included in comprehensive income attributable to the controlling interest.

When majority ownership is acquired, what portion of hte goodwill reported in the consolidated balance sheet is assigned to the noncontrolling interest?

The amount of goodwill at the date of acquisition is determined by deducting the fair value of the net assets of the acquired company from the sum of the fair value of the consideration given by the acquiring company and the fair value of the noncontrolling interest. The resulting goodwill must be apportioned between the controlling and noncontrolling interest. Under normal circumstances, goodwill apportioned to the noncontrolling interest will equal the excess of the fair value of the noncontrolling interest over its proportionate share of the fair value of the net assets of the acquired company.

How does the introduction of noncontroling shareholders change the consolidation worksheet?

The income statement portion of the consolidation worksheet is expanded to include a line for income assigned to the noncontrolling interest. This amount is deducted from consolidated net income in computing income to the controlling interest. The balance sheet portion of the worksheet also is expanded to include the claim of the noncontrolling shareholders on the net assets of the subsidiary.

Where is the balance assigned to the noncontrolling interest reported in the consolidated balance sheet?

The noncontrolling interest is reported as a separate item in the stockholders' equity section of the balance sheet.

Company X acquires 100% of the voting shares of Company Y for $275,000 on December 31, 20x8. The fair value of the net assets of Company X at the date of acquisition was $300,000. This is an example of a(n): a. positive differential b. bargain purchase c. extraordinary loss d. revaluation adjustment

bargain purchase

T Co. a subsidiary acquired for cash, owned equipment with a fair value higher than the book value as of date of combination. A consolidated balance sheet prepared immediately after the acquisition would include this difference in: a. goodwill b. retained earnings c. deferred charges. d. equipment

equipment

Push-down accounting can be used a. only in a goodwill situation. b. only in a bargain-purchase situation. c. in either a goodwill situation or a bargain-purchase situation. d. only in a cost = book value situation. e. None of the above.

in either a goodwill situation or a bargain-purchase situation.

Consolidated financial statements are being prepared for B Corp and its two wholly-owned subs that have intercompany loans of $50,000 and intercompany profits of $100,000. How much of these intercompany loans and profits should be eliminated? a. intercompany loans - $0; intercompany profits - $0 b. intercompany loans - $50,000; intercompany profits - $0 c. intercompany loans - $50,000; intercompany profits - $100,000 d. intercompany loans - $0: intercompany profits - $100,000

intercompany loans - $50,000; intercompany profits - $100,000

Paul Corp. owns 90 percent of Sam Inc.'s outstanding common stock. The carrying value of the investment in Sam is $170,000 and the fair value of this investment is $250,000. Paul sells half of its Sam Inc. shares for $130,000. What is the carrying amount of the remaining shares? a. $85,000 b. $125,000 c. $170,000 d.$250,000

$125,000

Paul Corp. owns 90 percent of Sam Inc.'s outstanding common stock. The carrying value of the investment in Sam is $170,000 and the fair value of this investment is $250,000. Paul sells all of its Sam Inc. shares for $200,000 and records a gain of a. $30,000. b. $50,000. c. $70,000. d.$170,000.

$30,000.

In 20X8, Scott incurred $90,000 of intercompany interest charges. Scott paid $70,000 cash to its parent and accrued the remainder. $40,000 was capitalized to a discrete construction project. The unrealized intercompany profit at 12/31/X8 is a.$0. b.$10,000. c.$20,000. d.$30,000. e.$40,000.

$40,000.

Paul Corp. owns 90 percent of Sam Inc.'s outstanding common stock. The carrying value of the investment in Sam is $170,000 and the fair value of this investment is $250,000. Paul sells half of its Sam Inc. shares for $130,000 and records a gain of a. $30,000. b. $50,000. c. $85,000. d. $170,000.

$85,000.

Which of the sub's account balances must always be eliminated?

All the stockholders' equity account balances of the subsidiary must be eliminated each time consolidated financial statements are prepared. Intercompany receivables and payables, if any, must also be eliminated.

The consolidated financial statements are identical regardless of whether the parent a. uses push-down or non-push-downaccounting. b. acquires 100 percent of the common stock or 100 percent of the assets. c. Both A and B. d. Neither A or B.

Both A and B.

What portion of consolidated retained earnings is assigned to the noncontrolling interest in the consolidated balance sheet?

Consolidated retained earnings includes only amounts attributable to the shareholders of the parent company. Thus, none of the retained earnings is assigned to the noncontrolling interest.

How are dividends paid by a sub to noncontrolling shareholders treated in the consolidation worksheet?

Dividends paid to noncontrolling shareholders are eliminated in preparing the consolidated statement of retained earnings as are those paid by the subsidiary to the parent. Only dividends paid by the parent company are reported as dividends in the consolidated financial statements.

How is the end-of-period noncontrolling interest balance determined?

In the consolidation worksheet the ending balance assigned to noncontrolling interest is derived by crediting noncontrolling interest for the starting balance, as indicated in the preceding question, and then adding income assigned to the noncontrolling interest in the consolidated income statement and deducting a pro rata portion of subsidiary dividends declared during the period. This is similar to the equity method of accounting for an investment.

What type of adjustment must be made in the consolidated worksheet if a differential is assigned to land and the sub disposes of the land in the current period?

In the period in which the land is sold, the gain or loss recorded by the subsidiary must be adjusted by the amount of the differential assigned to the land. When the differential is assigned in the worksheet consolidation entries at the end of the period, a debit will be made to the gain or loss on sale of land that came to the worksheet from the subsidiary's books.

Which of the parent company's account balances must always be eliminated?

The "investment in subsidiary" and "income from subsidiary" accounts must be eliminated each time consolidated financial statements are prepared. Intercompany receivables and payables, if any, must also be eliminated.

Under what circumstances would a parent company cease consolidation of a sub? Explain?

A parent will discontinue consolidating a subsidiary when it can no longer exercise control over it. Control might be lost for a number of reasons, such as: (1) the parent sells some or all of its interest in the subsidiary, (2) the subsidiary issues additional common stock, (3) the parent enters into an agreement to relinquish control, or (4) the subsidiary comes under the control of the government or other regulator.

A parent records amortization of excess value under which method? a. Push-down basis of accounting. b. Non-push-down basis of accounting. c. Both A and B. d. None of the above.

Non-push-down basis of accounting

How is income assigned to the noncontrolling interest shown in the consolidation worksheet?

Income assigned to noncontrolling shareholders is reported as a deduction from consolidated net income in arriving at income assigned to the parent company shareholders.

How is income assigned to the noncontrolling interest normally computed?

Income assigned to the noncontrolling interest normally is a proportionate share of the net income of the subsidiary.

A parent charges the amortization of its cost in excess of book value to Goodwill expense. Excess cost expense. Excess cost & goodwill expense. Income from subsidiary. None of the above.

Income from subsidiary.

An account of the acquired company that cannot be revalued to its current value under acquisition accounting is Notes receivable. Bonds payable. Investment in marketable securities. Patents. None of the above.

None of the above.

When majority ownership is acquired, what portion of the fair value of assets held by the sub at acquisition is reported in the consolidated balance sheet?

One hundred percent of the fair value of the subsidiary's assets is included.

How do other comprehensive income elements reported by a sub affect the consolidated financial statements?

Other comprehensive income elements reported by the subsidiary must be included in other comprehensive income in the consolidated financial statement. If the subsidiary is not wholly owned, comprehensive income assigned to the noncontrolling interest will include a proportionate share of the subsidiary's other comprehensive income.

When P company pays more than the book value of net assets of the acquired company (S), how does the consolidation process differ? P hires an outside accountant to do the work. P tracks the excess value and records it in the consolidation worksheet. S notifies P of the excess value. P and S ignore the excess amount paid.

P tracks the excess value and records it in the consolidation worksheet.

Which term refers to the practice of revaluing an acquired sub's assets and liabilities to their fair value directly on that sub's books at the date of acquisition? a. Fair value accounting b. Push-down accounting c. Fully adjusted method d. Reciprocal ownership

Push-down accounting