Chapter 4 - Consolidated Financial Statements and Outside Ownership

Consolidated retained earnings equal the parent's retained earnings when the parent accounts for its Investment in Subsidiary using Multiple choice question. the equity method. the initial value method. the fair value method. the partial equity method.

the equity method.

Under IFRS accounting standards, the initial accounting valuation for the noncontrolling interest may be measured utilizing Multiple select question. - the acquisition-date fair value. - the noncontrolling interest share of the subsidiary's net identifiable assets. - at zero leaving the noncontrolling interest unrecognized in consolidated financial statements. - an amount that excludes goodwill for the noncontrolling interest.

1, 2, & 4

True or false: During the current year Company A acquires additional shares of Company B stock increasing its 20% equity method investment to a 90% controlling interest. In its consolidated financial statements for the current year, Company A will report equity method income for its preacquisition ownership of Company B. True false question.TrueFalse

true

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? Multiple select question. - The unamortized excess acquisition-date subsidiary fair over book value as of the beginning of the period. - The book value of the subsidiary as of the beginning of the period. - The fair value of the subsidiary as of the beginning of the period. - The acquisition-date excess fair over book value for the subsidiary.

1 & 2

Once a parent achieves control over its subsidiary, subsequent purchases of noncontrolling interest shares Multiple select question. - do not affect the overall valuation basis of the subsidiary for consolidated financial reporting. - are included in the valuation bases of the subsidiary's assets and liabilities for consolidated financial reporting. - are considered equity transactions with any difference between carrying amount and purchase price allocated to additional paid-in capital. - are recorded as asset acquisitions at purchase date fair value.

1 & 3

Consolidation Entry A2 focuses on valuation and allocation of which of the following accounts? Multiple choice question. The subsidiary's goodwill and its identifiable net assets. Goodwill only. The parent's separate identifiable net assets. The subsidiary's identifiable net assets only.

Goodwill only.

How does Consolidation Entry A1 allocate the unamortized excess acquisition-date fair over book value for the subsidiary's identifiable asset and liabilities to the noncontrolling interest? Multiple choice question. All of the excess unamortized acquisition-date fair value is allocated to the noncontrolling interest. The excess unamortized acquisition-date fair value is allocated to the noncontrolling interest using their percentage ownership in the subsidiary. None of the excess unamortized acquisition-date fair value is allocated to the noncontrolling interest.

The excess unamortized acquisition-date fair value is allocated to the noncontrolling interest using their percentage ownership in the subsidiary.

A consolidated balance sheet reports a noncontrolling interest as Multiple choice question. a deferred asset account. a liability account. a contra-owners' equity account. a component of owners' equity.

a component of owners' equity.

When control is lost following a parent's sale of its subsidiary shares, the parent recognizes Multiple choice question. neither a gain/loss nor an adjustment to APIC. a gain or loss in net income. an adjustment to APIC.

a gain or loss in net income.

When a parent acquires additional shares in its controlled subsidiary from the noncontrolling interest, any excess of the consolidated book value of these shares over the price paid by the parent is recorded as Multiple choice question. an increase in the parent's additional paid-in capital. a decrease in the parent's additional paid-in capital. a gain on acquisition of noncontrolling shares. a loss on acquisition of noncontrolling shares.

an increase in the parent's additional paid-in capital.

A noncontrolling interest in a consolidated entity may be described as Multiple choice question. a set of owners, other than the parent company owners, but with no legal claim on a subsidiary's net assets. a set of owners with a proportionate ownership in the consolidated entity equal to their proportionate ownership of the subsidiary's voting shares. all creditors with a priority claim to the subsidiary's net assets. an ownership interest in a subsidiary held by owners other than the parent company.

an ownership interest in a subsidiary held by owners other than the parent company.

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 (blank) method for subsidiary income accruals.

equity

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

fair

At the date of a business acquisition, the parent values any noncontrolling interest shares at (blank) value.

fair

Company A establishes control with its most recent of a series of purchases of Company B's voting stock bring its ownership to 80%. The remaining 20% noncontrolling interest in Company B is valued at its estimated (blank) value as of the date Company A establishes control.

fair

As long as control is maintained, when a parent sells a portion of its ownership shares in its subsidiary, no (blank) or (blank) is recognized in consolidated income.

gain or loss

When a parent company employs the equity method, consolidation Entry D eliminates subsidiary dividends attributable to the (blank) company.

parent

On the consolidated balance sheet, dividends paid to the noncontrolling interest Multiple choice question. have no effect on the noncontrolling interest balance. reduce consolidated retained earnings. reduce the noncontrolling interest balance.

reduce the noncontrolling interest balance.

A primary difference between a single-step and multiple-step consolidation in the year control is obtained is the presence of a gain or loss on (blank) to fair value of the parent's previously owned investments in the subsidiary.

remeasurement

When the parent applies the equity method, which of the following balances are the same across the parent company accounts and consolidated balances? Multiple choice question. Current assets. Retained earnings. Consolidated net income. Equity in subsidiary earnings.

retained earnings

On a consolidation worksheet, the noncontrolling interest's share of subsidiary dividends declared Multiple choice question. serve to reduce the noncontrolling interest balance. has no effect on the noncontrolling interest balance. serve to increase the noncontrolling interest balance. reduces consolidated retained earnings.

serve to reduce the noncontrolling interest balance.

The amount for the noncontrolling interest is reported in the consolidated balance sheet in the Multiple choice question. long-term liability section. shareholders' equity section. long-term asset section.

shareholders' equity section.

A parent sells a portion of its investment in a subsidiary company. Following the sale, if the parent nonetheless maintains control over its former subsidiary, what is the appropriate accounting for the parent's retained investment? Multiple choice question. Market-value method. Consolidated financial statements. Equity method of investment accounting.

Consolidated financial statements.

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? Multiple choice question. Goodwill is always allocated 100% to the parent's controlling interest. Goodwill is always allocated 100% to the subsidiary's noncontrolling interest. Controlling and noncontrolling interest acquisition-date fair values are compared to relative fair values of subsidiary's identifiable net assets. Goodwill is allocated 80% to the parent's controlling interest and 20% to the noncontrolling interest in the subsidiary.

Controlling and noncontrolling interest acquisition-date fair values are compared to relative fair values of subsidiary's identifiable net assets.

Which of the following identify where noncontrolling interest amounts appear in consolidated financial statements? Multiple select question. - As a liability in the consolidated balance sheet. - As an asset in the consolidated balance sheet. - In the consolidated income statement as as allocation of consolidated net income. - In the consolidated owners' equity section.

3 & 4

Why may noncontrolling interest shares sell at a price less than shares recently sold that transferred control to an acquirer? Multiple select question. - Obtaining a controlling interest adds a valuable benefit to the acquirer. - Noncontrolling interest shares no longer carry the benefit of transferring control to a new owner. - Noncontrolling interest shares are not traded after a business combination.

1 & 2

A Company establishes control with its most recent of a series of purchases of Company B's voting stock. What are the valuation implications for Company A's investment in Company B as of the date control is obtained? Multiple choice question. Company B will be valued in total as the sum of the acquisition prices of each of the series of purchases. Company B will be valued in total at its control-date fair value. Company B will be valued as the sum of the preacquisition equity method balance plus the purchase price that established control.

Company B will be valued in total at its control-date fair value.

When the parent company employs the initial value method for its Investment in Subsidiary account, Entry (blank) is unnecessary.

D

A parent sells a portion of its investment in a subsidiary company. Following the sale, if the parent loses control but retains significant influence over its former subsidiary, what is the appropriate accounting for the parent's retained investment? Multiple choice question. Equity method of investment accounting. Market-value method. Consolidated financial statements.

Equity method of investment accounting.

A parent sells a portion of its investment in a subsidiary company. Following the sale, if the parent maintains neither control nor significant influence over its former subsidiary, what is the appropriate accounting for the parent's retained investment? Multiple choice question. Equity method of investment accounting. Consolidated financial statements. Market-value method.

Market-value method.

Which of the following are reasons for one company to gain control over another with less than 100% ownership? Multiple select question. -the parent firm may not have resources sufficient to acquire all of its subsidiary shares. - 100% ownership may result in a noncontrolling interest that seeks to control decision-making. - the laws of some countries prevent complete ownership by a foreign firm. - some outside owners of the subsidiary company may have been unwilling to sell their shares.

1, 3, & 4

Which of the following items enter into the computation of net income attributable to the noncontrolling interest? Multiple select question. - The noncontrolling interest's ownership percentage in the subsidiary. - The parent company's net income. - Excess acquisition-date fair value amortizations. - The subsidiary's net income.

1, 3, & 4

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. 20% 100% 0% 80%

100%

For an 80% owned subsidiary accounted for under the equity method, the parent includes in the Investment in Subsidiary account balance Multiple select question. - a deduction for 100% of subsidiary dividends declared since acquisition. - a deduction for 80% of subsidiary dividends declared since acquisition. - 100% of post-acquisition subsidiary earnings adjusted for excess acquisition-date fair value amortizations. - 80% of post-acquisition subsidiary earnings adjusted for excess acquisition-date fair value amortizations.

2 & 4

As part of the consolidation process which of the following are included in the calculation of the ending balance of the noncontrolling interest? Multiple select question. - All subsidiary dividends paid to either the controlling or noncontrolling interests. - Dividends from the subsidiary attributable to the noncontrolling interest. - The balance of the noncontrolling interest as of the beginning of the period. - The consolidated entity's net income attributable to the non-controlling interest.

2, 3, & 4

A parent company owns 80% of the voting stock of a subsidiary. What percentage of the subsidiary's net income (after excess acquisition-date fair value amortizations) is attributable to the noncontrolling interest? Multiple choice question. 80% 20% 100% 0%

20%

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. 80% 0% 20% 100%

20%

A parent company owns 80% of the voting stock of a subsidiary. What percentage of the total excess fair value net adjustment should Consolidation Entry A allocate to the noncontrolling interest? Multiple choice question. 100% 80% 0% 20%

20%

Company A owns a 40% equity method investment in Company B. Subsequently, Company A acquires a controlling interest in a Company B and now must prepare consolidated financial statements. If the date Company A obtains control occurs midyear, how are subsidiary revenues and expenses reported in consolidated income statement in the year of the business combination? Multiple select question. - Postacquisition subsidiary revenues and expenses are excluded from consolidated revenues and expenses. - Preacquisition subsidiary revenues and expenses are included in consolidated revenues and expenses. - Postacquisition subsidiary revenues and expenses are included in consolidated revenues and expenses. - Preacquisition subsidiary revenues and expenses are excluded from consolidated revenues and expenses.

3 & 4

Examining the Exhibit 4.6 consolidation worksheet when the parent accounts for its 80% owned subsidiary using the equity method, what balances that occur on the parent's (King Company) column are brought to zero via consolidation entries? Multiple select question. - Goodwill - Dividends declared - Investment in Pawn Company - Equity in Pawn's earnings

3 & 4

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 Multiple select question. - only the consideration transferred by the parent. - the subsidiary's carrying value of the noncontrolling interest. - the fair value of the controlling interest. - the fair value of the noncontrolling interest.

3 & 4

A parent company owns 80% of the voting stock of a subsidiary. In Consolidation Entry D, what percentage of the subsidiary's balance in its Dividends Declared account should be eliminated? Multiple choice question. 0% 80% 20% 100%

80%

Which of the following accounting treatment applies when a parent sells enough of its subsidiary's shares so that it no longer possesses control over the subsidiary? Multiple choice question. The parent recognizes either a gain or loss on the shares sold. The parent recognizes any difference between the proceeds and the underlying carrying amount of the shares sold as an adjustment to APIC. The sale of subsidiary stock is considered an equity transaction.

The parent recognizes either a gain or loss on the shares sold.

Following a sale, when a parent retains only a non-controlling portion of its former subsidiary's shares, the retained investment is revalued to (blank) value as of the date control is lost.

fair

If available, market trading activity in noncontrolling interest shares surrounding an acquisition can provide an estimate of the noncontrolling interest's acquisition-date (blank) value.

fair

True or false: When a parent sells sufficient shares in a subsidiary such that it loses control, the parent recognizes a gain or loss for the difference between the proceeds of the sale and the carrying amount of the shares sold. True false question.TrueFalse

true

When a parent company obtains control of its subsidiary at a midyear date, the parent includes in consolidated totals subsidiary revenues and expenses only subsequent to the (blank) date.

acquisition

In periods subsequent to acquisition, noncontrolling (NCI) interest valuation in consolidated financial reports is based on Multiple choice question. current fair value of the noncontrolling interest's equity shares. acquisition-date fair value adjusted for the NCI's share of post-acquisition adjusted subsidiary net income. the current carrying amounts of the subsidiary's assets and liabilities. acquisition-date fair value adjusted for the NCI's share of post-acquisition adjusted subsidiary net income less dividends.

acquisition-date fair value adjusted for the NCI's share of post-acquisition adjusted subsidiary net income less dividends.

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 (blank) (blank).

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 (blank) of the period.

beginning

When a parent company acquires additional shares of an already controlled subsidiary, the acquisition is accounted for as an (blank) transaction.

equity

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

fair

When a parent pays a control premium in a less-than-100% acquisition, Multiple choice question. a proportional amount of goodwill is allocated to the parent and noncontrolling interest based on ownership percentages. more goodwill will be allocated to the parent than to the noncontrolling interest relative to their proportionate ownership percentages. all goodwill is always allocated to the parent company.

more goodwill will be allocated to the parent than to the noncontrolling interest relative to their proportionate ownership percentages.

The extra price per share paid to ensure a controlling interest in a business combination is referred to as a control (blank).

premium

Consolidation Entry I represents part of a sequence of worksheet entries that bring the Investment in Subsidiary account to a (blank) balance.

zero

For most cases, the best measure of a noncontrolling interest's acquisition-date fair value is Multiple choice question. the market price per share paid by the parent for the acquisition. the market price of the noncontrolling shares surrounding the date of an acquisition. an estimate based on future income projections.

the market price of the noncontrolling shares surrounding the date of an acquisition.

True or false: IFRS accounting standards for the noncontrolling interest allow an initial measurement option, whereas US GAAP allows no initial measurement option. True false question.TrueFalse

true

True or false: Regardless of whether a parent obtains control in a single or multiple steps, the subsidiary's assets and liabilities are revalued in the entirety to fair value at the date control is obtained. True false question.TrueFalse

true

Following a sale, when a parent retains only a non-controlling portion of its former subsidiary's shares, what accounting is appropriate for the retained investment? Multiple select question. - The retained investment is revalued to fair value as of the date control is lost. - An adjustment to APIC is recognized on the revaluation of the retained investment to fair value. - The carrying amount of the retained investment remains unchanged. - A gain or loss is recognized on the revaluation of the retained investment to fair value.

1 & 4

Which of the following identify where noncontrolling interest amounts appear in consolidated financial statements? Multiple select question. - In the consolidated owners' equity section. - As an asset in the consolidated balance sheet. - As a liability in the consolidated balance sheet. - In the consolidated income statement as as allocation of consolidated net income.

1 & 4

When a parent applies the initial value method to account for its Investment in Subsidiary account, Consolidation Entry asterisk C provides which of the following adjustments to accrual accounting? Multiple select question. - An adjustment to the parent's RE for its share of excess fair value amortizations from acquisition date to the beginning of the current period. - An adjustment to the parent's current net income for its share of the subsidiary's net income. - An adjustment to the parent's RE for its share of the change in subsidiary RE from acquisition date to the beginning of the current period. - An adjustment to the parent's current dividends for its share of the subsidiary's current dividends.

1 & 3

When a business acquisition resulting in control takes place midyear, how is the consolidation process affected? Multiple select question. - Subsidiary book value must be computed as of the acquisition date. - Only post-acquisition subsidiary expenses are included in consolidated totals. - Only post-acquisition subsidiary revenues are included in consolidated totals. - Current year revenues and expenses are included in consolidated net income regardless of the acquisition date.

1, 2, & 3

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? Multiple select question. - The parent company's Retained Earnings - The Investment in Subsidiary - The Noncontrolling Interest. - The subsidiary company's Common Stock

2 & 3

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

controls

Fill in the blank question. 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 (blank) attributable to the noncontrolling interest.

dividends

Following the (blank) (blank) 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

Because it is an intra-entity transfer, the portion of a subsidiary dividend payable to its parent company is (blank) in consolidation.

eliminated

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? Multiple select question. - Total assets and total equities and liabilities - Dividends declared - Retained Earnings 1/1 - King Company's separate net income and the consolidated total for net income attributable to King Company. - Retained Earnings 12/31

2, 3, 4, & 5

In periods subsequent to an acquisition, how is consolidated net income generally computed in the presence of a 20% noncontrolling interest? Multiple choice question. 100% of the parent's net income plus 100% of the subsidiary's net income adjusted for excess acquisition-date fair value amortizations. 100% of the parent company's net income excluding any income from the subsidiary. 100% of the parent's net income plus 20% of the subsidiary's net income adjusted for excess acquisition-date fair value amortizations. 100% of the parent's net income plus 80% of the subsidiary's net income adjusted for excess acquisition-date fair value amortizations..

100% of the parent's net income plus 100% of the subsidiary's net income adjusted for excess acquisition-date fair value amortizations.

Company A obtains control over Company B in a step acquisition. Upon achieving control, how does a parent account for its previous noncontrolling interest in Company B? Multiple choice question. The parent's previously held noncontrolling interest is adjusted to fair value with a corresponding adjustment to additional paid-in capital. The parent's previously held noncontrolling interest is adjusted to fair value and a gain or loss is recognized. The carrying amount of the parent's previously held noncontrolling interest is deducted from stockholders' equity. The parent's previously held noncontrolling interest remains at its previous carrying amount.

The parent's previously held noncontrolling interest is adjusted to fair value and a gain or loss is recognized.