Accounting 473 Ch 4 quiz
A parent company owns 80% of the voting stock of a sub. What percentage of the total excess fair value net adjust should consolidation entry A allocate to the NC interest?
20%
On January 1, 2017, Grand Haven, Inc., reports net assets of $850,050 although equipment (with a four-year remaining life) having a book value of $487,000 is worth $558,250 and an unrecorded patent is valued at $47,700. Van Buren Corporation pays $775,200 on that date to acquire an 80 percent equity ownership in Grand Haven. If the patent has a remaining life of nine years, at what amount should the patent be reported on Van Buren's consolidated balance sheet at December 31, 2018?
$37,100
Jordan, Inc., holds 75 percent of the outstanding stock of Paxson Corporation. Paxson currently owes Jordan $567,500 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be eliminated?
$567,500
Mittelstaedt Inc., buys 60 percent of the outstanding stock of Sherry, Inc. Sherry owns a piece of land that cost $242,000 but had a fair value of $606,000 at the acquisition date. What value should be attributed to this land in a consolidated balance sheet at the date of takeover?
$606,000
Following a step acquisition that results in 80% ownership and control, what amount does the parent include in Investment in sub account based on the equity method
-80% of post-control sub dividends as a deduction -the parent's pre-control sub investment at control-date fair value -80% of post-control sub net income less excess acquisition-date fair value amort
When Company A achieves control over Company B after a series of stock acquisitions, then
-Company A recognizes a gain or loss on revaluation to fair value of its previously held interest in Company B -the relevant sub values for consolidation are acquisition-date fair values
When will the acquisition date fair values of the shares owned by the controlling and NC interest equal one another?
-When the per share price paid by the parent is representative of the acquiree's total acquisition-date fair value -When the parents acquire its shares in the sub without paying a control premium
Which of the following are reasons for one company to gain control over another with less than 100% ownership?
-the parent firm may not have resources sufficient to acquire all of its sub shares -some outside owners of the sub company may have been unwilling to sell their shares -the laws of some countries prevent complete ownership by a foreign firm
A parent company owns 80% of the voting stock of a sub. What % of the sub's revenue and expense are consolidated?
100%
In periods subsequent to an acquisition, how is consolidated net income generally computed in the presence of a 20% NC interest?
100% of the parent's net income plus 100% of the subs net income adjusted for excess acquisition-date fair values amortizations
A parent company owns 80% of the voting stock of a sub. What % of the total beginning subs stockholders' equity elimination should Consolidation entry S allocate to the NC interest?
20%
What is a basic premise of the acquisition method regarding accounting for a NCI?
A sub is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership
At the date of a business acquisition, the parent values any NC interest shares at
Fair value
Where in the consolidated balance sheet is the outside ownership interest recognized?
In the owner's equity section
When control is lost following a parent's sale of its sub shares, the parent recognizes
a gain or loss in net income
When the parent company employs partial equity method for its investment in sub account, Consolidation Entry *C is needed to adjust the parent's RE for excess fair value _________ from the acquisition date to the beginning of the current period.
amortization expense
When a parent acquires additional shares in its controlled sub from the NC interest, any excess of the consolidated book value of these shares over the price paid by the parent is recorded as
an increase in the parent's additional paid in capital
How does Consolidation Entry A1 allocate the unamortized excess acquisition-date fair over book value for the subs identifiable asset and liabilities to the NC interest?
based on the NC interest's ownership % in the sub
The extra price per share paid to ensure a controlling interest in a business combination is referred to as a
control premium
Under the acquisition method, the ________ calls for a parent to consolidate 100% of a controlled sub's assets and liabilities despite owning less than 100% of the sub's voting shares.
economic unit concept
Despite the fact that 100% of a controlled sub's assets and liabilities are consolidated with those of a parent in consolidation, only the parent's % ownership is used for internal accounting under the _________ for sub income accruals.
equity method
A parent sells a portion of its investment in a sub company. Following the sale, if the parent loses control but retains significant influence over its former sub, what is the appropriate account for the parent's retained investment?
equity method of investment accounting
If available, market trading activity in NC interest shares surrounding an acquisition can provide an estimate of the NC interest's acquisition-date
fair value
Regardless of its percentage ownership, when a parent acquires control over a sub, the parent must recognize the noncontrolling interest at its acquisition-date ______
fair value
As long as control is maintained, when a parent sells a portion of its ownership shares in its sub, no ___ or ___ is recognized in consolidated income
gain, loss
When the sum of the acquisition-date fair values of the controlling and non-controlling interests exceeds the collective acquisition-date fair values of the sub's identifiable net assets, then the acquiring company recognizes ______
goodwill
When a parent pays a control premium in a less than 100% acquisition,
more goodwill will be allocated to the parent than to the noncontrolling interest relative to their proportionate ownership percentages
In consolidated financial reports, the ________ represents a set of owners, in addition to the parent company, who have a legal claim to the subsidiary's net assets
noncontrolling interest
When the parent applies the equity method, which of the following balance are the same across the parent company accounts and consolidated balances?
retained earnings
A primary difference between a single-step and multiple-step consolidation in the year control is obtained in the presence of a gain or loss on _______ to fair value of the parent's previously owned investments in the sub.
revaluation
On a consolidation worksheet, the NC interest's share of subs dividends declared
serve to reduce the NC interest balance
Consolidated RE equal the parent's RE when the parent accounts for its Investment in Sub using
the equity method
Consolidated RE equal the parent's RE when the parent accounts for its Investment in sub using
the equity method
For most cases, the best measure of a NC interest's acquisition date fair value is
the market price of the NC shares surrounding the date of an acquisition
Which of the following accounting treatment applies when a parent sells enough of its subs shares so that it no longer possesses control over the sub?
the parent recognizes a gain or loss on the shares sold
Company A obtains control over Company B in a step acquisition. Upon achieving control, how does a parent account for its previous NC interest in Company B?
the parent's previously held NC interest is adjusted to fair value and a gain or loss is recognized
Why is goodwill allocated to the controlling and noncontrolling interests according to their proportionate ownership percentages in the sub?
the per share acquisition-date fair values of the shares owned by both the controlling and noncontrolling interests are identical
Consolidation Entries I, D, E represent part of a sequence of worksheet entries that bring the Investment in Sub account to a
zero balance
T or F Consolidation entry E does not vary depending on the % of the controlled sub owned by the parent.
True
Once a parent achieves control over its sub, subsequent purchases of NC interest shares
-do not affect the overall valuation basis of the sub for consolidated financial reporting -are considered equity transactions with any difference between carrying amount and purchase price allocated to additional paid in capital
For a year-end consolidation of a midyear acquisition, the sub's preacquisition revenues, expenses, and dividends are
-included as part of the sub acquisition date book value -partially included as components of the beginning NC interest -excluded from consolidated net income and retained earnings
On January 1, 2017, Chamberlain Corporation pays $550,800 for a 60 percent ownership in Neville. Annual excess fair-value amortization of $23,500 results from the acquisition. On December 31, 2018, Neville reports revenues of $458,000 and expenses of $310,000 and Chamberlain reports revenues of $810,000 and expenses of $441,000. The parent figures contain no income from the subsidiary. What is consolidated net income attributable to Chamberlain Corporation?
$443,700
For an 80% owned sub accounted for under the equity method, the parent includes in the Investment in sub account balance
-a deduction for 80% of sub dividends declared since acquisition -80% of post acquisition sub earnings adjusted for excess acquisition date fair value amorts
The computation of the NC interest share of consolidated net income includes
-an adjustment for the NC interest's share of excess acquisition-date fair value allocation amortization -the NC interest's proportional ownership of the subs net income
When active trades are unavailable, which of the following are useful techniques for estimating the acquisition date fair value of a NC interest when a control premium is likely?
-comparisons to similar investments -discounted future cashflow estimations
Which consolidated statement amounts change with the presence of a control premium paid by the parent in its acquisition of the sub?
-current assets (cash) -goodwill
Which of the following identify where NC interest amounts appear in consolidated financial statements?
-in the consolidated owner's equity section -in the consolidate income statement as an allocation of consolidated net income
The allocation of goodwill across the controlling and NC interests
-does not always result in an allocation proportional to percentage ownership interests -compares acquisition date total fair values to the relative (proportional) fair values of the subsidiary's identifiable net assets