Advanced Accounting

Pontos Corporation buys 80% of the voting stock of Springfield Company on January 1, 2017. At the date of acquisition, it is determined that Springfield has a secret recipe for its famous cookies, not currently reported on its balance sheet, that has a fair value of $36,000. The secret cookie recipe meets ASC Topic 805 requirements for capitalization as an intangible asset, and has an estimated life of 6 years, straight-line. On the consolidated balance sheet at December 31, 2020, at what value is the secret cookie recipe reported?

$12,000

Packer Company acquired 75% of the shares of Skye Company for $50,000 in cash. The remaining 15% interest (noncontrolling interest) has a fair value of the is $15,000. At the date of acquisition, the gain generated from the acquisition was $2,000. REQUIRED. How should the gain be allocated? Explain.

Although goodwill is allocated between the controlling and non-controlling interest, a gain is not treated in the same manner. All of the gain is allocated ONLY to the parent. The gain is recorded on the parent's books at the time of the acquisition.

Which of the following is true? For internal reporting purposes, the parent company does not have an option other than the complete equity method. For internal reporting purposes, the parent uses the same equity method that is used for external reporting purposes. For internal reporting purposes, the parent uses the cost method or the complete equity method, the resulting consolidated financial statements are identical. For internal reporting purposes, the parent must use the complete equity method because it provides the most accurate accounting of its investment.

For internal reporting purposes, the parent uses the cost method or the complete equity method, the resulting consolidated financial statements are identical.

When completing a consolidation working paper, the eliminating entry for a prior year intercompany transfer of land includes a debit to the subsidiary's retained earnings when the transfer is:

An upstream sale and the transfer was made at a gain

When a subsidiary has a 30% noncontrolling interest, and the acquisition is a bargain purchase, the gain on acquisition is

The fair value of identifiable net assets acquired less the combined total of the acquisition cost and the fair value of noncontrolling interest

A parent owns 75% of a subsidiary's voting stock. On the consolidated balance sheet at the date of acquisition, at what value are consolidated plant assets reported?

The parent's book value of plant assets plus the subsidiary's fair value of plant asset

If the parent company uses the complete equity method when accounting for its wholly-owned subsidiary on its own books, consolidated net income equals

The parent's separately reported income plus the subsidiary's ending retained earnings balance

Which statement is true concerning U.S. GAAP for the qualitative evaluation of goodwill?

The qualitative test is optional and if used, precedes the quantitative test

A parent provides consulting services to its wholly-owned subsidiary during the year. The parent charged the subsidiary $600,000 for the services. The parent's cost of providing the services is $520,000. The companies use service revenue and service expense, as appropriate, to record this transaction on their own books. The consolidation eliminating entry or entries related to the intercompany services include an adjustment to the subsidiary's accounts as follows

a credit to service expense, $600,000

Feldman pays $70 million in cash to acquire 70% of the voting stock of Bundy Company. The fair value of the noncontrolling interest at the date of acquisition is $25 million, and the book value of Bundy Company is $20 million. There are no revaluations of Bundy Company's identifiable net assets. REQUIRED: Assuming U.S. GAAP is used. a. Calculate the total goodwill b. How much goodwill is allocated to the controlling interest? What percent of goodwill is allocated to the controlling interest? c. How much goodwill is allocated to the non-controlling interest? What percent of goodwill is allocated to the non-controlling interest?

a. Total goodwill = $70 million + $25 million - $20 million = $75 million b. Goodwill to the controlling interest = $70 million - (70% x $20 million) = $56 million Goodwill percent to the controlling interest = 75% c. Goodwill to the noncontrolling interest = $75 million - $56 million = $19 million Goodwill percent to the non-controlling interest = 25%

At the beginning of 2019, a subsidiary sells equipment with a book value of $400,000 to its parent for $500,000. At the time of the sale, the equipment had a remaining life of 5 years, straight-line. The parent still has the equipment at the end of 2020 (2 years later). On the consolidated financial statements for 2020, how is the equipment reported? REQUIRED: a. Is this an upstream or downstream sale? b. Why is it important to know whether or not the parent still has the equipment? c. At what amount should the equipment be reported on the balance sheet at the end of 2020? d. How much depreciation expense should be reported on the income statement at the end of 2020

1. Upstream 2. Any intercompany gain/loss must be eliminated each year that the asset is still held by the parent. 3. On the balance sheet the equipment is reported at book value less accumulated depreciation: $400,000 - 160,000 = $240,000 4. On the income statement the depreciation expense is $80,000

Noncontrolling interest is reported on the consolidated balance sheet as

An equity account

How is the noncontrolling interest in a subsidiary valued at the date of acquisition, following U.S. GAAP?

Fair value at the date of acquisition.

Speedman Industries reports $11,600 in goodwill and decides to quantitatively test it for impairment at the end of the year. The following information is available for the company's three divisions: 10-speeds, 12-speeds, Off-roads 10-speeds: Book value of goodwill $ 5,000, $ 400, & $6,200. Fair value of division 60,000, 10,000, & 25,000. Book value of division 62,000, 9,500, & 24,000 REQUIRED: a. Is Goodwill impaired for all three divisions? If not, for which division(s) is goodwill impaired? b. How much is the goodwill impairment (separate by division)?

A) Goodwill is not impaired for all three divisions. It is only impaired for 10-Speed. B) 10-Speed: (62,000 - 60,000) 2000 Impairment 12-Speed: (9500 - 10000) -500 No impairment 0ff-Road: (24000 - 25000) -1000 No impairment

Which of the following is true regarding the Consolidated Statement of Cash Flows?

The consolidated statement of cash flows is prepared based on information from the consolidated income statement and the consolidated balance sheet

A parent sells land to its subsidiary for $40,000 and reports a gain of $5,000. At what amount should the land be shown on the consolidated balance sheet?

$35,000

Assume a U.S. company decides to quantitatively test its goodwill for impairment. A division's book value exceeds its fair value by $5 million, and its goodwill has a book value of $6 million. The division's goodwill impairment loss is

$5 Million

On January 1, 2020, Peppard Inc. acquired all of the stock of Smith Telecom for $85,000 in cash. At the date of acquisition, Smith's shareholders' equity accounts were as follows:Common stock, $1 par................................... $ 1,000 Additional paid-in capital................................... 14,000 Retained earnings.................. (3,000) Treasury stock.......................... (200) Total.................. $ 11,800 Both companies have a December 31 year-end. At the date of acquisition, Smith reported net assets had book values approximating fair value. However, it had previously unreported indefinite life identifiable intangibles valued at $15,000, meeting ASC Topic 805 requirements for capitalization. Impairment losses in 2020 for identifiable intangibles were $600. Goodwill from this acquisition was not impaired in 2020. Smith reported net income of $900 in 2020, and paid no dividends. Peppard uses the complete equity method to report its investment in Smith on its own books. Additional information: The amount of Goodwill that resulted from this acquisition is $58,200. The equity in net income reported on Peppard's books in 2020 is $300. REQUIRED Prepare eliminating entries (C), (E), (R) and (O), required to consolidate Peppard's trial balance accounts with those of Smith on December 31, 2020.

(Entry C) Equity in Net Income of Subsidiary Debit $300 Investment in subsidiary Credit $300 (Eliminate equity in net income) (Entry E) Common Stock Debit $1,000 Additional Paid-In Capital Debit $14,000 Retained Earnings Credit $3,000 Treasury Stock Credit $200 Investment in subsidiary Credit $11,800 [(14,000+1000)-(3000+200)] (Eliminate beginning equity accounts) (Entry R) Indefinite Identifiable Intangibles Debit $15,000 Goodwill Debit $58,200 Investment in Subsidiary credit $73,200 [15000 + 58200] (Recognize beginning revaluations) (Entry O) Impairment losses Debit $600 Indefiniete identifiable Intangibles Credit $600

A parent sells merchandise to a subsidiary at a markup over its cost. The subsidiary has sold all of the merchandise by year-end. Which of the following working paper eliminating entries are needed to consolidate the financial statements of the parent and subsidiary at year-end, concerning the intercompany sales of merchandise?

Debit sales, credit cost of goods sold for the sales value of the merchandise sold by the parent.

On consolidated financial statements, where does the parent's equity in the net income of the subsidiary account appear?

Doesn't appear on the consolidated financial statements