Chapter 5.1 & 5.2 Advanced

Assume that on January 1, 2012, a parent company acquired a 80% interest in a subsidiary's voting common stock. On the date of acquisition, the fair value of the subsidiary's net assets equaled their reported book values. On January 1, 2014, the subsidiary purchased a building for $336,000. The building has a useful life of 8 years and is depreciated on a straight-line basis with no salvage value. On January 1, 2016, the subsidiary sold the building to the parent for $294,000. The parent estimated that the building had a six year remaining useful life and no salvage value. The parent also uses the straight-line method of amortization. For the year ending December 31, 2016, the parent's "stand-alone" income (i.e., net income before recording any adjustments related to pre-consolidation investment accounting) is $350,000. The subsidiary's recorded net income is $70,000. Based on this information, determine the balance for consolidated building (net of accumulated depreciation): a. $210,000 b. $245,000 c. $294,000 d. $336,000

A

Assume that on July 1, 2016, a parent company paid $2,821,500 to purchase a 75% interest in a subsidiary's voting common stock. On that date, the fair value of the 25% interest not purchased by the parent company is $937,500. The acquisition-date fair value of the identifiable net assets of the subsidiary is $3,600,000. What is the amount of goodwill assigned to the controlling and noncontrolling interests, respectively, on the acquisition date? a. $121,500 and $37,500 b. $120,000 and $39,000 c. $119,250 and $39,750 d. $112,500 and $37,500

A

Assume that on January 1, 2012, a parent company acquired a 80% interest in a subsidiary's voting common stock. On the date of acquisition, the fair value of the subsidiary's net assets equaled their reported book values. On January 1, 2014, the subsidiary purchased a building for $336,000. The building has a useful life of 8 years and is depreciated on a straight-line basis with no salvage value. On January 1, 2016, the subsidiary sold the building to the parent for $294,000. The parent estimated that the building had a six year remaining useful life and no salvage value. The parent also uses the straight-line method of amortization. For the year ending December 31, 2016, the parent's "stand-alone" income (i.e., net income before recording any adjustments related to pre-consolidation investment accounting) is $350,000. The subsidiary's recorded net income is $70,000. Based on this information, determine the balance for consolidated depreciation expense: a. $25,200 b. $29,400 c. $42,000 d. $49,000

C

Assume that on January 1, 2012, a parent company acquired a 80% interest in a subsidiary's voting common stock. On the date of acquisition, the fair value of the subsidiary's net assets equaled their reported book values. On January 1, 2014, the subsidiary purchased a building for $336,000. The building has a useful life of 8 years and is depreciated on a straight-line basis with no salvage value. On January 1, 2016, the subsidiary sold the building to the parent for $294,000. The parent estimated that the building had a six year remaining useful life and no salvage value. The parent also uses the straight-line method of amortization. For the year ending December 31, 2016, the parent's "stand-alone" income (i.e., net income before recording any adjustments related to pre-consolidation investment accounting) is $350,000. The subsidiary's recorded net income is $70,000. Based on this information, determine the balance for consolidated income attributable to noncontrolling interest: a. $15,400 b. $14,000 c. $7,000 d. $5,600

C

Assume that a parent company owns less than 100% of a long-controlled subsidiary. Which of the following statements is false? a. Balance sheet presentation of noncontrolling interest is necessary because consolidated balances always reflect 100% of the net assets of the subsidiary. b. Goodwill is always assigned to the controlling and noncontrolling interests in the relative proportion of their ownership interests. c. Noncontrolling interest represents the portion of the subsidiary's net assets that is not owned by the parent. d. Noncontrolling interest is classified as an owners' equity account.

B

Assume that a parent company purchased less than 100% of the voting common stock when it acquired a controlling interest in a subsidiary on August 15, 2016. The parent uses the equity method to account for the subsidiary on its pre-consolidation books. Both companies have a December 31, 2016 fiscal year end. Which of the following statements is correct? a. The amount of total assets reported in the consolidated balance sheet is usually less than total assets in the parent company's pre-consolidation balance sheet. b. In the balance sheet prepared immediately after the acquisition, the parent company's pre-consolidation retained earnings will always equal consolidated retained earnings. c. Noncontrolling interest reported in the consolidated balance sheet always equals the percentage of shares held by the noncontrolling shareholders multiplied times the pre-acquisition reported net assets of the subsidiary. d. Consolidated net income for the year ended December 31, 2016 will include 100% of the subsidiary's income for the entire year.

B

Assume that on January 1, 2012, a parent company acquired a 80% interest in a subsidiary's voting common stock. On the date of acquisition, the fair value of the subsidiary's net assets equaled their reported book values. On January 1, 2014, the subsidiary purchased a building for $336,000. The building has a useful life of 8 years and is depreciated on a straight-line basis with no salvage value. On January 1, 2016, the subsidiary sold the building to the parent for $294,000. The parent estimated that the building had a six year remaining useful life and no salvage value. The parent also uses the straight-line method of amortization. For the year ending December 31, 2016, the parent's "stand-alone" income (i.e., net income before recording any adjustments related to pre-consolidation investment accounting) is $350,000. The subsidiary's recorded net income is $70,000. Based on this information, determine the balance for consolidated net income attributable to the controlling interest: a. $371,000 b. $378,000 c. $406,000 d. $413,000

B

Assume that on January 1, 2012, a parent company acquired a 80% interest in a subsidiary's voting common stock. On the date of acquisition, the fair value of the subsidiary's net assets equaled their reported book values. On January 1, 2014, the subsidiary purchased a building for $336,000. The building has a useful life of 8 years and is depreciated on a straight-line basis with no salvage value. On January 1, 2016, the subsidiary sold the building to the parent for $294,000. The parent estimated that the building had a six year remaining useful life and no salvage value. The parent also uses the straight-line method of amortization. For the year ending December 31, 2016, the parent's "stand-alone" income (i.e., net income before recording any adjustments related to pre-consolidation investment accounting) is $350,000. The subsidiary's recorded net income is $70,000. Based on this information, determine the balance for income from investment in subsidiary (on parent's pre-consolidations books preceding consolidation): a. $21,000 b. $28,000 c. $56,000 d. $63,000

B

Assume that on May 15, 2013, a parent company purchased a 65% interest in a subsidiary's voting common stock. During the year ended December 31, 2016, the subsidiary sold merchandise to the parent for $600,000. Before consolidation, the parent and subsidiary earn the same profits on intercompany sales as they earn on sales to unaffiliated customers. The parent's gross profit percentage is 30% and the subsidiary's is 35%. On December 31, 2016, 25% of this merchandise was in the parent's ending inventory. What amount of intercompany profit in ending inventory that must be deferred in preparation of the December 31, 2016 consolidated financial statements? a. $31,500 b. $52,500 c. $45,000 d. $150,000

B

Assume that on January 1, 2015, a parent company acquired a 70% interest in a subsidiary's voting common stock. On the date of acquisition, the fair value of the subsidiary's net assets equaled their reported book values. There were no intercompany sales during 2015. During the year ended December 31, 2016, the companies made $200,000 of intercompany sales. All intercompany sales include profits of 25% of selling price. At December 31, 2016, there was $50,000 of intercompany merchandise (i.e., inventory purchased via intercompany transactions) in ending inventory. The following are the highly summarized "stand alone" pre-consolidation income statements of the parent and subsidiary for the year ended December 31, 2016 (i.e., they do not include the effects of pre-consolidation investment accounting, like the equity method): Income Stmt Parent: Revs - 1350,000 Exps - (900,000) NI - 450,000 Income Stmt Sub: Revs - 630,000 Exps - (450,000) NI - 180,000 For the year ended December 31, 2016, what amounts will be reported for net income attributable to the noncontrolling interest in the parent's consolidated income statement assuming either (1) all of the intercompany inventory is held by the parent or (2) all of the intercompany inventory is held by the subsidiary at December 31, 2016? a. $54,000 or $54,000 respectively b. $50,250 or $50,250 respectively c. $50,250 or $54,000 respectively d. $54,000 or $50,250 respectively

C

Assume that on January 1, 2015, a parent company acquired an 80% interest in a subsidiary's voting common stock. On the date of acquisition, the fair-value of the subsidiary's net assets equaled their reported book values except for machinery and equipment, which had a fair value of $300,000 and a reported book value of $150,000. The machinery and equipment had a 5-year remaining useful life and no salvage value. The following are the highly summarized pre-consolidation income statements of the parent and subsidiary for the year ended December 31, 2016: Income Stmt Parent: Rev - 1296,000 Equity income - 45,120 Exp - (864,000) NI - 477,120 Income Stmt Sub: Rev - 172,800 Exp - (86,400) NI - 86,400 For the year ended December 31, 2016, what amounts will be reported for (1) consolidated net income and (2) net income attributable to the noncontrolling interest, respectively, in the parent's consolidated financial statements? a. $563,520 and $17,280 b. $494,400 and $17,280 c. $488,400 and $11,280 d. $477,120 and $11,280

C

Assume that on July 1, 2016, a parent company paid $2,760,000 to purchase a 80% interest in a subsidiary's voting common stock. On that date, the fair value of the 20% interest not purchased by the parent company is $690,000. The acquisition-date fair value of the identifiable net assets of the subsidiary is $3,600,000. What is the amount of goodwill (or bargain purchase gain) assigned to the controlling and noncontrolling interests, respectively, on the acquisition date? a. $75,000 bargain purchase gain assigned to the controlling interest and $75,000 bargain purchase gain assigned to the noncontrolling interest b. $120,000 goodwill assigned to the controlling interest and $30,000 goodwill assigned to the noncontrolling interest c. $120,000 bargain purchase gain assigned to the controlling interest and $30,000 bargain purchase gain assigned to the noncontrolling interest d. $150,000 bargain purchase gain assigned to the controlling interest and $0 assigned to the noncontrolling interest

D