Advanced Accounting Chapter 3

When a parent company uses the partial equity method to account for an investment in a subsidiary, Consolidation Entry asterisk C is needed to

- update the parent's retained earnings for past years' amortization acquisition-date fair value adjustments -to simulate the equity method for the parent's retained earnings in deriving consolidated totals.

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

If a parent uses either the initial value or partial equity method, then a worksheet adjustment must be made to bring the parent's retained earnings balance to equal that of the _____________ method

equity

When the parent uses the equity method, consolidation entry I

removes the parent's recorded equity income

Subsequent to acquisition, consolidated depreciation expense is based upon

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

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

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

1. Cost of goods sold 2. Revenues

Under the partial equity method the parent records income from its subsidiary as

1. Equity in subsidiary earnings 2. An increase in the investment in subsidiary account

When is Consolidation Entry asterisk C required?

1. In post-acquisition periods when the parent has used the partial equity method to account for its subsidiary investment 2. in post-acquisition periods when the parent has used the initial value method to account for its subsidiary investment

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

1. Net Income 2. Retained Earnings

When the initial value method is used, the parent's separate net income on a consolidation worksheet will

1. differ from the consolidation net income amount 2. be reduced using Consolidation Entry I

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

1. excess axquisition-date fair over book values for limited-life subsidiary assets must be amortized over time 2. Intra-entity receivable and payables are eliminated 3. subsidiary assets and liabilities are adjusted to reflect acquisition - date fair values net of post-acquisition amortization

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

Beyond recording the acquisition price, what periodic adjustments does the parent typically make to the investment account when the initial value method is employed

No periodic adjustments are typically made

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

True or False: Included in the consolidated totals are the subsidiary's amortized acquisition-date excess fair over book value allocations

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

Three alternative methods of investment accounting available to the parent for its internal record-keeping are the equity method, the initial value method, and the partial equity method. Regardless of its choice, the investment accounting method has no effect on the ______ financial statements

consolidated

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

consolidation

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

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

dividends

Consolidation Entry asterisk C relates to

income effects from previous periods

What effect does the parent's selection of the equity method vs. the initial value have on consolidated financial statements?

no effect

In consolidation Entry D, the credit to the Dividends Declared amount

reduces the subsidiary's dividend balance

When the parent applied the initial value method for its investment accounting, consolidation Entry I is needed to

remove the balance in the parent's Dividend Income and the subsidiary's Dividends Declared

When the parent employs either the initial value or the partial equity method, establishing an appropriate beginning _______________ ______________ balance for the parent is crucial to the preparation of consolidated financial statements

retained earnings

Worksheet entries focus on the parent's beginning retained earnings as needed to partially adjust to the full-accrual basis. To complete the adjustment, we combine current year consolidated ____________ and ______________ to arrive at full-accrual ending retained earnings

revenues expenses

In conjunction with combining a subsidiary's revenues and expenses with those of the parent company, the income from subsidiary account accrued by a parent is brought to a _____ balance as part of the consolidation process.

zero

Consolidation Entry E recognizes amortization expenses related to

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

True/False: Consolidation Entry E is identical for worksheets regardless of whether the parent uses the initial value method or the equity method

True

Depending on the investment accounting method (equity, initial value, partial equity) chosen, which of the following accounts will vary on the parent's financial records

1. Income from the subsidiary 2. Retained earnings 3. The investment account

Consolidation Entry E

1. Increases expenses when excess fair over book value acquisition-date allocations are made to depreciable subsidiary assets 2. Provides current period amortization expense for the acquisition-date fair-value adjustments

How do the consolidation worksheets compare across Exhibit 3.5 (parent uses the equity method) and Exhibit 3.9 (parent uses the initial value method)

1. No differences in the consolidation totals across the two exhibits 2. Consolidation entries S, A, and E are the same across the two exhibits

Which of the following contribute to the full-accrual income recognition of subsidiary income on the parent's financial records under the equity method?

1. the recognition of excess acquisition-date fair value adjustment amortizations to subsidiary income 2. the recognition of subsidiary reported income

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

Accrual Basis

When the parent uses the equity method, Consolidation Entry D:

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

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 ____ company balances after appropriate adjustments

parent