Seminar in Fian Acct Ch5-7

What amount of total assets will be reported?

$1,121,000 Total Assets of Power Corp.$791,500 Less: Investment in Silk Corp. (150,500) $641,000 Book value of assets of Silk Corp. 405,000 Book value reported by Power and Silk$1,046,000 Increase in inventory ($85,000 − $70,000) 15,000 Increase in land ($45,000 − $25,000) 20,000 Goodwill 40,000 Total assets reported$1,121,000

At December 31, 20X9, Grey Inc. owned 90 percent of Winn Corporation, a consolidated subsidiary, and 20 percent of Carr Corporation, an investee in which Grey cannot exercise significant influence. On the same date, Grey had receivables of $300,000 from Winn and $200,000 from Carr. In its December 31, 20X9, consolidated balance sheet, Grey should report accounts receivable from its affiliates of

$200,000. The only accounts receivable from affiliates that will be eliminated from the consolidated balance sheet are receivables from consolidated entities (Winn Corporation). Thus, the receivable from any unconsolidated investees (Carr Corporation) would be reported on the consolidated balance sheet.

What amount of consolidated retained earnings will be reported?

$205,000

Which of the following is correct? -The noncontrolling shareholders' claim on the subsidiary's net assets is based on the book value of the subsidiary's net assets. -Only the parent's portion of the difference between book value and fair value of the subsidiary's assets is assigned to those assets. -Goodwill represents the difference between the book value of the subsidiary's net assets and the amount paid by the parent to buy ownership. -Total assets reported by the parent generally will be less than total assets reported on the consolidated balance sheet.

Total assets reported by the parent generally will be less than total assets reported on the consolidated balance sheet. Because the consolidated balance sheet contains the assets of the parent company as well as the assets of the subsidiary, total assets of the parent company will always be less than total assets reported on the consolidated balance sheet.

If A Company acquires 80 percent of the stock of B Company on January 1, 20X2, immediately after the acquisition, which of the following is correct?

Consolidated retained earnings and A Company retained earnings will be the same. Under the equity method, consolidated retained earnings will always equal the retained earning balance of the acquiring company (A company) at the date of acquisition regardless of the percentage owned. The retained earnings balance of the acquired company (B Company) is eliminated in consolidation. This will continue to be true if the parent uses the fully-adjusted equity method to account for its investment.

Which of the following statements is correct? -Foreign subsidiaries do not need to be consolidated if they are reported as a separate operating group under segment reporting. -Consolidated retained earnings do not include the noncontrolling interest's claim on the subsidiary's retained earnings. -The noncontrolling shareholders' claim should be adjusted for changes in the fair value of the subsidiary assets but should not include goodwill. -Consolidation is expected any time the investor holds significant influence over the investee.

Consolidated retained earnings do not include the noncontrolling interest's claim on the subsidiary's retained earnings. The only amount included in the consolidated retained earnings balance is the retained earnings balance from the parent's books.

A 70 percent owned subsidiary company declares and pays a cash dividend. What effect does the dividend have on the retained earnings and noncontrolling interest balances in the parent company's consolidated balance sheet?

No effect on retained earnings and a decrease in noncontrolling interest. Subsidiary dividends declared have no effect on consolidated retained earnings (because the parent's retained earnings appear as the consolidated retained earnings, but they do decrease the noncontrolling interest just as they decrease the controlling interest.

How is the portion of consolidated earnings to be assigned to the noncontrolling interest in consolidated financial statements determined?

The amount of the subsidiary's earnings recognized for consolidation purposes is multiplied by the noncontrolling interest's percentage of ownership. The noncontrolling interest's proportionate share of the subsidiary's income is allocated based on the percentage of ownership in the subsidiary held by the noncontrolling shareholders.

Power Corporation acquired 70 percent of Silk Corporation's common stock on December 31, 20X2. Balance sheet data for the two companies immediately following the acquisition follow: PowerSilkItemCorporationCorporationAssets Cash $44,000 $30,000 Accounts Receivable 110,000 45,000 Inventory 130,000 70,000 Land 80,000 25,000 Buildings & Equipment 500,000 400,000 Less: Accumulated Depreciation (223,000) (165,000) Investment in Silk Corporation Stock 150,500 Total Assets $791,500 $405,000 Liabilities and Stockholders' Equity Accounts Payable $61,500 $28,000 Taxes Payable 95,000 37,000 Bonds Payable 280,000 200,000 Common Stock 150,000 50,000 Retained Earnings 205,000 90,000 Total Liabilities and Stockholders' Equity $791,500 $405,000 At the date of the business combination, the book values of Silk's net assets and liabilities approximated fair value except for inventory, which had a fair value of $85,000, and land, which had a fair value of $45,000. The fair value of the noncontrolling interest was $64,500 on December 31, 20X2. Required:For each question below, indicate the appropriate total that should appear in the consolidated balance sheet prepared immediately after the business combination. What amount of inventory will be reported?

$215,000 $215,000 = $130,000 + $70,000 + ($85,000 − $70,000)

On January 1, 20X8, Ritt Corporation acquired 80 percent of Shaw Corporation's $10 par common stock for $956,000. On this date, the fair value of the noncontrolling interest was $239,000, and the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) with a remaining life of 20 years, which were $100,000 in excess of the carrying amount. For the year ended December 31, 20X8, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the December 31, 20X8, consolidated balance sheet, the amount of noncontrolling interest reported should be

$251,000. $251,000 = 0.20[($956,000 + $239,000) + ($190,000 − $5,000 − $125,000)]

What amount of goodwill will be reported?

$40,000 $40,000 = ($150,500 + $64,500) − ($405,000 − $28,000 − $37,000 − $200,000) − $15,000 − $20,000

What amount of total stockholders' equity will be reported?

$419,500 $419,500 = ($150,000 + $205,000) + $64,500

What amount will be reported as noncontrolling interest?

$64,500

On January 1, 20X5, Post Company acquired an 80 percent investment in Stake Company. The acquisition cost was equal to Post's equity in Stake's net assets at that date. On January 1, 20X5, Post and Stake had retained earnings of $500,000 and $100,000, respectively. During 20X5, Post had net income of $200,000, which included its equity in Stake's earnings, and declared dividends of $50,000; Stake had net income of $40,000 and declared dividends of $20,000. There were no other intercompany transactions between the parent and subsidiary. On December 31, 20X5, what should the consolidated retained earnings be?

$650,000 $650,000 = $500,000 + $200,000 − $50,000

What amount of total liabilities will be reported?

$701,500 $701,500 = ($61,500 + $95,000 + $280,000) + ($28,000 + $37,000 + $200,000)

On January 1, 20X8, Ritt Corporation acquired 80 percent of Shaw Corporation's $10 par common stock for $956,000. On this date, the fair value of the noncontrolling interest was $239,000, and the carrying amount of Shaw's net assets was $1,000,000. The fair values of Shaw's identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) with a remaining life of 20 years, which were $100,000 in excess of the carrying amount. For the year ended December 31, 20X8, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the January 1, 20X8, consolidated balance sheet, the amount of goodwill reported should be

$95,000. $95,000 = ($956,000 + $239,000) − $1,000,000 − $100,000