Advanced Test 2

Why does Consolidation Entry S remove the subsidiary's stockholders' equity accounts?

Subsidiary ownership accounts are not relevant, because consolidated statements are prepared for the parent company owners.

Why is the goodwill shown in Exhibit 4.3 allocated to the controlling and noncontrolling interests according to their proportionate ownership percentages in the subsidiary?

The per share acquisition-date fair values of the shares owned by both the controlling and noncontrolling interests are identical

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

Which of the following represent procedures required in preparing consolidated financial statements for a parent company and its subsidiary?

-subsidiary assets and liabilities are adjusted to reflect acquisition-date fair values net of post-acquisition amortization -intra-entity receivable and payables are eliminated -excess acquisition-date fair over book values for limited-life subsidiary assets must be amortized over time

Which of the following are characteristics of the equity method of accounting for a parent company's investment in a subsidiary company?

-the parent recognizes the income effect of amortizing excess subsidiary acquisition-date fair over book value -the parent company accrues income as earned by the subsidiary -unrealized gains on intra-entity transactions are deferred from income

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

When the fair values of the subsidiary shares owned by the controlling and noncontrolling interests are equal at acquisition date, then

-the parent has not paid a control premium for its proportional interest -any resulting goodwill will be recognized proportionately across the two ownership groups

Consolidation Entry S credits the Investment in Subsidiary account in order to

remove the beginning of the year book value component of the investment account.

Consolidation Entry P

removes the balances from intra-entity receivables and payables

When the parent uses the equity method, Consolidation Entry I

removes the parent's recorded equity income

The amount for the noncontrolling interest is reported in the consolidated balance sheet in the

shareholders' equity section

The label "S" in Consolidation Worksheet Entry S refers to the subsidiary's _________ _________accounts.

stockholders' equity

Subsequent to acquisition, consolidated depreciation expense is based upon

the acquisition-date fair values of the subsidiary's depreciable assets

For an 80% owned subsidiary accounted for under the equity method, the parent includes in the Investment in Subsidiary account balance

-80% of post-acquisition subsidiary earnings adjusted for excess acquisition-date fair value amortizations -a deduction for 80% of subsidiary dividends declared since acquisition

When the parent applies the equity method on its internal records, what account balances are removed on the consolidated worksheet?

-the parent's share of subsidiary dividends declared -investment insubsidiary -equity in subsidiary earnings

When will the acquisition-date fair values of the shares owned by the controlling and non-controlling interest equal one another?

-when the parents acquires its shares in the subsidiary without paying a control premium -when the per share price paid by the parent is representative of the acquiree's total acquisition-date fiar value

Consolidation Entry A adjusts the subsidiary's assets to their unamortized acquisition-date fair value as of what date?

beginning of the current reporting period

When the parent applies the equity method to its investment in subsidiary account, Consolidation Entry D eliminates the effect of intra-entity subsidiary ___________ as part of the consolidation process.

dividends

Following the _______ _________ 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.

economic unit

At the date of the business acquisition, the parent values any noncontrolling interest shares at __________ value.

fair

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

fair

When the acquisition-date subsidiary fair value per share is ______________ for a parent company and the noncontrolling interest, then goodwill is allocated proportionately across the two ownership interests.

identical

Which of the following Exhibit 3.4 accounts are simply combined (without adjustment) in preparing consolidated financial statements for the parent and its subsidiary?

liabilities and current 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

Subsidiary dividends are excluded from consolidated retained earnings because they are attributable to the parent company and not to an ________ party.

outside

Which of the following Exhibit 3.4 income statement accounts are eliminated for consolidated financial statement reporting?

Equity in subsidiary earnings

T/F: Worksheet consolidation entries are not posted to the books of either the parent of the subsidiary.

True

Goodwill is not amortized on the Exhibit 3.7 consolidation worksheet because it is considered a(n) _______ lived asset.

indefinite

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

king or parent company

When a particular asset acquired in a business combination as an acquisition-date fair value in excess of its acquisition-date book value, the asset's carrying amount from the subsidiary's financial records

must be increased in preparing consolidated financial statements

Which of the following represent components of subsidiary income recognized when the parent applies the partial equity method?

The parent's share of the subsidiary's reported net income

T/F: Consolidated totals include the unamortized subsidiary acquisition-date excess of fair over book value allocations.

True

When the collective acquisition-date fair values of the subsidiary's identifiable net assets exceeds the sum of the acquisition-date fair values of the controlling and non-controlling interests, then the acquiring company recognizes a gain on __________ ________

bargain purchase

The combined credits 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

In consolidated financial reports, the ________ _________ represents a set of owners, in addition to the parent company, who have a legal claim to the subsidiary's net assets.

noncontrolling interest

Subsidiary dividends are excluded from consolidated retained earnings because they are attributable to the parent company and not to an________ party.

outside

The values assigned to intangible assets with indefinite useful lives are

subject to periodic impairment testing

T/F Consolidation Entry A may include an adjustment to recognize goodwill created by the business combination.

High

When a parent company owns 100% of its subsidiary, what amounts for common stock and additional paid-in capital are included in consolidated stockholders' equity totals?

Parent company balances only

In the Exhibit 4.6 consolidation worksheet, the parent accounts for its 80% owned subsidiary using the equity method. What balances in the worksheet are identical across the parent (King Co.) column and the consolidated totals column?

-Retained Earnings 1/1 -King Company's separate net income and the consolidated total for net income attributable to King Company -Dividends declared -Retained Earnings 12/31

Which of the following accounts of both the parent and subsidiary are combined for consolidated financial reporting?

-assets and liabilities -revenues and expenses

The allocation of goodwill across the controlling and noncontrolling interests

-compares acquisition date total fair values to the relative (proportional) fair values of the subsidiary's identifiable net assets -does not always result in an allocation proportional to percentage ownership interests

Using the equity method, which of the following affects the Investment in Subsidiary account on the parent's books

-decreases in subsidiary equity from subsidiary dividends -the original consideration transferred for the investment -increases in subsidiary equity from subsidiary net income

When active trades are unavailable, which of the following are useful techniques for estimating the acquisition-date fair value of a noncontrolling interest?

-discounted future cash flow estimations -residual income projections

A parent company, over time, will routinely make which of the following adjustments in applying the equity method to its investment in subsidiary account?

-excess acquisition-date fair over book value amortization -income as it is earned and reported by the subsidiary -dividends from the subsidiary

Which of the following are identified and measured by an acquiring firm as of the date of a 90% subsidiary acquisition.

-goodwill or a gain from bargain purchase -noncontrolling interest at acquisition-date fair value -100% of all subsidiary assets and liabilities at full fair values

Which of the following account balances are identical across the parent's records and consolidated totals when the parent applies the equity method for its Investment in Subsidiary account?

-net income -retained earnings

Why may noncontrolling interest shares sell at a price less than shares recently sold that transferred control to an acquirer?

-noncontrolling interest shares no longer carry the benefit of transferring control to a new owner -obtaining a controlling interest adds a valuable benefit to the acquirer

Consolidation Entry E

-provides current period amortization expense for the acquisition-date fair-value adjustments -increases expenses when excess fair over book value acquisition-date allocations are made to depreciable subsidiary assets

A parent company's choice of investment accounting method (equity method, initial value method, or partial equity method) will affect which of the following balances on the parent's books?

-retained earnings -investment in subsidiary -income from the subsidiary

Which of the following Exhibit 3.4 income statement accounts are of the parent and subsidiary are simply added together (without adjustment)?

-revenues -cost of goods sold

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 laws of some countries prevent complete ownership by a foreign firm -the parent firm may not have resources sufficient to acquire all of its subsidiary shares

The computation of the noncontrolling interest (NCI) share of consolidated net income includes

-the NCI's proportional ownership of the subsidiary's net income -an adjustment for the NCI's share of excess acquisition-date fair value allocation amortization

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

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

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

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? Multiple choice question.

20%

T/F: Quoted prices in active markets are required to properly value the equity shares held by a noncontrolling interest.

False Can use many other techniques

Which of the following account balances are identical across the parent's records and consolidated totals when the parent applies the equity method for its Investment in Subsidiary account? Multiple select question.

Net income and Retained earnings

A parent company controls a subsidiary company through ownership of 100% of the subsidiary's voting stock. How are cash dividends declared by the subsidiary on its voting stock treated in the parent's consolidated financial reports?

Not included having been eliminated in the consolidation process

Why does measuring the acquisition-date fair value of a noncontrolling interest require estimation?

The noncontrolling interest shares were neither bought nor sold as part of the acquisition

T/F: In the presence of acquisition-date excess fair over book values for subsidiary assets, both consolidation entries A and E are needed to adjust subsidiary assets to their end-of-the-year proper consolidated balances. True false question.

True Consolidation entry A brings the subsidiary asset to its beginning-of-the-year balance. The consolidation entry E completes the adjustment for the current year.

A consolidated balance sheet reports a noncontrolling interest as

a component of owners' equity

When a subsidiary's acquisition-date fair values exceed its book values for its limited-lived assets, the equity method records over time

a reduction in equity in subsidiary earnings for amortization expense

Which of the following best describes the income recognition basis reflected by the equity method?

accrual basis

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

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

Consolidation Entry I

brings the "Equity in Subsidiary Earnings" account to a zero balance.

Regardless of the parent's internal accounting method choice, the initial amount typically recorded in an investment in subsidiary account is the fair value of the ________ _______ by the parent.

consideration paid

When the parent applies the equity method for its 100% owned subsidiary, its Equity in Subsidiary Earnings account balance equals the effect of the subsidiary's income on __________ net income.

consolidated

If a subsidiary company has a debt payable to its parent company, the intra-entity payable and receivable (on the parent's books) _________ as part of the process.

consolidation

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 acquisiton-date fair values are compared to relative fair values of subsidiary's identifiable net assets

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

controls

When a subsidiary's tangible asset has an excess acquisition-date book over fair value, Consolidation Entry E will show a ___________ to depreciation expense.

credit

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 _______________ attributable to the noncontrolling interest.

dividends

When the parent uses the equity method, Consolidation Entry D Multiple choice question.

eliminates the intra-entity subsidiary dividends attributable to the parent company

Consolidation Entry P removes intra-entity payable and receivable balances because the parent and subsidiary companies are viewed as a single _________ for financial reporting purposes.

entity

Consolidation worksheets are typically used in the process of preparing consolidated financial statements required by GAAP. Such worksheets utilize consolidation worksheet _________ to develop financial statement totals to be reported by the consolidated entity

entries

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

According to the acquisition method, the noncontrolling interest valuation includes its share of the acquistion-date ________ value of the subsidiary's identifiable net assets adjusted for post-acquisition amortization.

fair

Consolidation Entry A, in the first year subsequent to acquisition, adjusts the subsidiary's asset and liability balances to acquisition-date ____ values.

fair

Regardless of its percentage ownership, when a parent acquires control over a subsidiary, the parent must recognize the noncontrolling interest at at its acquisition-date _________ value.

fair

The valuation principle for reporting the acquisition-date amount of a non-controlling interest is __________ value.

fair

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 ____________

goodwill

The extra price per share paid to ensure a controlling interest in a business combination is referred to as a control _________

premium

In Consolidation Entry D, the credit to the Dividends Declared account

reduces the subsidiary's dividends balance

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 only the parent's share of consolidated net income is recognized in the parent's records

As compared to acquisition-date accounting for business combinations, subsequent to an acquisition the parent company must additionally report consolidated

revenues, expenses, and net income

The consolidated amount for trademarks exceeds the sum of the amounts shown by the parent and subsidiary companies in Exhibit 3.4. The extra amount is attributable to the acquisition-date excess fair over book value for the trademarks of the __________ company.

subsidiary

The noncontrolling interest's share of consolidated net income is limited to its proportional ownership of the subsidiary's shares multiplied by the ____________ net income adjusted for excess acquisition-date fair value amortizations.

subsidiary's

Consolidated retained earnings equal the parent's retained earnings when the parent accounts for its Investment in Subsidiary using

the equity method

Which of the following is a characteristic of the partial equity method of accounting for a parent company's investment in a subsidiary company?

the parent company accrues income as reported by the subsidiary

Consolidation Entry D debits the "Investment in Subsidiary" account when

the parent employs the equity method in accounting for its investment and the subsidiary has declared a current period cash dividend.

Consolidation Entry E recognizes amortization expenses related to

the subsidiary's acquisition-date differences between fair and book values

T/F: Consolidation Entry I removes the Equity in Subsidiary Earnings which is then replaced by the inclusion of the subsidiary's individual revenue and expense accounts on the consolidated income statement.

true

Consolidation entries S and A are part of a sequence of worksheet adjustments that bring the Investment in Subsidiary account to a _________ balance.

zero

T/F: The consolidated entry to record goodwill is not accompanied by another consolidation entry to amortize goodwill.

True

As part of the consolidation statement preparation process for a parent and subsidiary, the subsidiary's asset, liability, revenue, and expense balances are added to the _________ balances after appropriate adjustments.

Parent

A parent company owns 80% of the voting stock of a subsidiary. In Consolidation Entry I, what percentage of the parent's balance in its Equity in Subsidiary Earnings account should be eliminated? Multiple choice question.

100%

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