BA 458 Chapter 4

On January 1, 2016, Pride Corporation 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, 2016, Star's net assets had a total carrying amount of $420,000. Equipment (eight-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 (four-year remaining life), but not recorded on its books. Star recorded net income of $70,000 in 2016 and $80,000 in 2017. Each year since the acquisition, Star has declared a $20,000 dividend. At January 1, 2018, Pride's retained earnings show a $250,000 balance. Selected account balances for the two companies from their separate operations were as follows: 2018 Revenues: Pride: $498,000, Star $285,000 2018 Expenses : Pride: $350,000 Star: $195,000 What is consolidated net income for 2018? a.) $197,500 b.) $194,000 c.) $203,000 d.) $238,000

$203,000

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 identifiable 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 revenues 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? a.) $219,000 b.) $250,500 c.) $234,000 d.) $237,000

$237,000

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

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: a.) Adjusted to fair value at the date of the second acquisition with a resulting adjustment to additional paid-in capital. b.) Maintained at its initial value. c.) Adjusted to its equity method balance at the date of the second acquisition. d.) Adjusted to fair value at the date of the second acquisition with a resulting gain or loss recorded.

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

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? a.) In the owners' equity section b.) In the liability section c.) The noncontrolling interest is not recognized in the consolidated balance sheet d.) In a mezzanine section between liabilities and owner's equity

In the owner's 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? a.) Recognize a gain on sale for $16,000 b.) Reduce goodwill by $64,000 c.) Recognize a revaluation gain on its remaining shares of $48,000 d.) Increase its additional paid-in capital by $16,000

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

On January 1, 2016, Pride Corporation 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, 2016, Star's net assets had a total carrying amount of $420,000. Equipment (eight-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 (four-year remaining life), but not recorded on its books. Star recorded net income of $70,000 in 2016 and $80,000 in 2017. Each year since the acquisition, Star has declared a $20,000 dividend. At January 1, 2018, Pride's retained earnings show a $250,000 balance. Selected account balances for the two companies from their separate operations were as follows: 2018 Revenues: Pride: $498,000, Star $285,000 2018 Expenses : Pride: $350,000 Star: $195,000 Assuming that Pride, in its internal records, accounts for its investment in Star using the equity method, what amount of retained earnings would Pride report on its January 1, 2018 consolidated balance sheet? a.) $286,000 b.) $315,000 c.) $360,000 d.) $250,000

$250,000

On January 1, 2017, Grand Haven, Inc., reports net assets of $760,000 although equipment (with a four-year remaining life) having a book value of $440,000 is worth $500,000 and an unrecorded patent is valued at $45,000. Van Buren Corporation pays $692,000 on that date to acquire an 80 percent equity ownership in Grand Haven. If the patent has a remaining life of nine years, at what amount should the patent be reported on Van Buren's consolidated balance sheet at December 31, 2018? a.) $35,000 b.) $36,000 c.) $40,000 d.) $28,000

$35,000

On January 1, 2017, 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, 2018, 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? a.) $400,000 b.) $366,000 c.) $351,000 d.) $385,000

$351,000

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? a.) 0 b.) $400,000 c.) $300,000 d.) $100,000

$400,000

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? a.) $337,000 b.) $421,800 c.) $549,000 d.) $127,200

$549,000

Amie, Inc., has 100,000 shares of $2 par value stock outstanding. Prairie Corporation acquired 30,000 of Amie's shares on January 1, 2015, for $120,000 when Amie's net assets had a total fair value of $350,000. On July 1, 2018, 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, 2018, Prairie forecasted that obtaining control of Amie would produce significant revenue synergies to justify the premium price paid. If Amie's identifiable net assets had a fair value of $500,000 at July 1, 2018, how much goodwill should Prairie report in its postcombination consolidated balance sheet? a.) $60,000 b.) $100,000 c.) $0 d.) $90,000

$60,000

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? a.) Include 100 percent of Mark-Right's revenues and expenses and deduct the preacquisition portion as noncontrolling interest in net income. b.) Deduct 15 percent of the net combined revenues and expenses relating to the preacquisition period from consolidated net income. c.) Exclude 100 percent of the preacquisition revenues and 100 percent of the preacquisition expenses from their respective consolidated totals. d.) Exclude 15 percent of the preacquisition revenues and 15 percent of the preacquisition expenses from consolidated expenses.

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