Chapter Five: Consolidated Financial Statements: Outside Interests
On the consolidated balance sheet, the noncontrolling interest in the net assets of the subsidiary appears as a separate line in the equity section.
True p. 177
The current stock price of a publicly-traded company reflects transactions among noncontrolling shareholders, and is appropriate for valuing the noncontrolling interest.
True p. 179
If there are multiple subsidiaries, noncontrolling interests may be presented in aggregate.
True p. 181
Noncontrolling interest on the balance sheet is its initial fair value, updated for its share of accumulated comprehensive income and dividends during the post-acquisition period.
True p. 182
The most straightforward way to value the noncontrolling interest on the consolidated balance sheet in years subsequent to acquisition is to keep track of its value at the end of the previous year, and use elimination (R) to set the beginning-of-year value.
True p. 194
Dividends paid to noncontrolling shareholders, as well as dividends paid to the parent's shareholders, are shown as cash used for financing activities.
True p. 202
An acquirer buys 80% of the stock of a target company on January 1, 2014. At the date of acquisition, it is determined that the target company has a secret recipe for its famous cookies, not currently reported on its balance sheet, that has a fair value of $20,000,000. The secret cookie recipe meets ASC Topic 805 requirements for capitalization as an intangible asset, and has an estimated life of 5 years, straight-line. On the consolidated balance sheet at December 31, 2017, at what value is the secret cookie recipe reported? a. $4,000,000 b. $3,200,000 c. $16,000,000 d. $8,000,000
a. $4,000,000
How is the noncontrolling interest in a subsidiary valued at the date of acquisition, following U.S. GAAP? a. Fair value at the date of acquisition. b. The noncontrolling interest's share of the fair value of the subsidiary's net assets at the date of acquisition. c. The noncontrolling interest's share of the book value of the subsidiary at the date of acquisition d. The noncontrolling interest's share of the book value of the subsidiary at the date of acquisition plus its share of date-of-acquisition goodwill
a. Fair value at the date of acquisition
A subsidiary has a 10% noncontrolling interest. At the date of acquisition, eliminating entry (E) recognizes what part of the noncontrolling interest? a. The noncontrolling interest's share of the subsidiary's book value. b. The fair value of the noncontrolling interest c. The noncontrolling interest's share of the revaluations of the subsidiary's identifiable net assets d. The noncontrolling interest's share of the subsidiary's fair value
a. The noncontrolling interest's share of the subsidiary's book value
When a subsidiary has a 20% noncontrolling interest, and the acquisition is a bargain purchase, the gain on acquisition is: a. The fair value of identifiable net assets acquired less acquisition cost b. The fair value of identifiable net assets acquired less acquisition cost less fair value of noncontrolling interest c. 80% of the fair value of identifiable net assets less acquisition cost d. 80% of the fair value of identifiable net assets less acquisition cost less fair value of noncontrolling interest
b. The fair value of identifiable net assets acquired less acquisition cost less fair value of noncontrolling interest
A subsidiary has a 10% noncontrolling interest. At the date of acquisition, eliminating entry (R) recognizes what part of the noncontrolling interest? a. The noncontrolling interest's share of the subsidiary's book value. b. The noncontrolling interest's share of the revaluations of the subsidiary's net assets c. The noncontrolling interest's share of the revaluations of the subsidiary's identifiable net assets d. The noncontrolling interest's share of the subsidiary's fair value
b. The noncontrolling interest's share of the revaluations of the subsidiary's net assets
A parent acquires 90% of the voting stock of a subsidiary for $20 million. The fair value of the noncontrolling interest was $2,000,000. The subsidiary's book value at the date of acquisition was $1 million. Following is revaluation information for the subsidiary's identifiable net assets at the date of acquisition: Inventories $(400,000) Equipment $(10,000,000) Identifiable Intangibles $16,000,000 What is total consolidated goodwill at the date of acquisition? a. $14,400,000 b. $13,400,000 c. $15,400,000 d. $16,400,000
c. $15,400,000
A company pays $50 million in cash to acquire 80% of the stock of another company. The fair value of the noncontrolling interest at the date of acquisition is $8 million, and the book value of the acquired company is $4 million. There are no revaluations of the acquired company's identifiable net assets. Goodwill to the noncontrolling interest, following U.S. GAAP, is: a. $0 b. $3.2 million c. $7.2 million d. $8.0 million
c. $7.2 million
ASC Topic 810 requires the noncontrolling interest in net income to be reported on the consolidated income statement as: a. An operating expense b. A nonoperating expense c. A distribution of consolidated net income d. An other revenue
c. A distribution of consolidated net income
Noncontrolling interest is reported on the consolidated balance sheet as: a. A noncurrent tangible asset account b. An identifiable intangible asset account c. A noncurrent liability account d. An equity account
d. An equity account
A parent acquires 90% of the voting stock of a subsidiary for $20 million. The fair value of the noncontrolling interest was $2,000,000. The subsidiary's book value at the date of acquisition was $1 million. Following is revaluation information for the subsidiary's identifiable net assets at the date of acquisition: Inventories $(400,000) Equipment $(10,000,000) Identifiable Intangibles $16,000,000 What is the amount of consolidated goodwill attributed to the noncontrolling interest at the date of acquisition? a. $0 b. $1,340,000 c. $1,540,000 d. $1,440,000
B. $1,340,000
When an active market prices is not available, acquirers use other valuation methods to estimate the fair value of the controlling, but not the noncontrolling interests in the acquire.
False p. 179
When there is a noncontrolling interest valuation discount, the goodwill allocation to the noncontrolling interest will be, on a percentage basis, greater than its ownership interest.
False p. 180
Entry (N) is designed to eliminate the Noncontrolling interest from the parent company's financial records.
False p. 184
In a bargain purchase, the investment account and noncontrolling interest reflect the total revaluation of the identifiable net assets because a bargain price was paid.
False p. 193