Advanced Chapter 4

When the fair values of the subsidiary shares owned by the controlling and noncontrolling interests are equal at acquisition date, then the parent has not paid a control premium for its proportional interest. any resulting goodwill will be recognized proportionately across the two ownership groups. the parent has paid a control premium for its proportional interest.

a, b

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 _____ ______

bargain purchase

Why does measuring the acquisition-date fair value of a noncontrolling interest require estimation? a) Noncontrolling interest shares typically have no observable value. b) The noncontrolling interest shares were neither bought nor sold as part of the acquisition. c) Once a controlling interest in a subsidiary is acquired, the remaining shares cease to trade. d) Noncontrolling interest shares are rarely actively traded.

b

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? An adjustment to the parent's current dividends for its share of the subsidiary's current dividends. 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 net income for its share of the subsidiary's net income. 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.

b, d

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

On January 1, 2020, Chamberlain Corporation pays $481,600 for a 60 percent ownership in Neville. Annual excess fair-value amortization of $24,700 results from the acquisition. On December 31, 2021, Neville reports revenues of $512,000 and expenses of $386,000 and Chamberlain reports revenues of $754,000 and expenses of $430,000. The parent figures contain no income from the subsidiary. What is consolidated net income attributable to Chamberlain Corporation?

384,780 combined revenues = 1,266,000 combined expenses = (816,000) excess amortization = (24,700) consolidated NI = above = 425,300 less: NCI share (101,300 x 40%) = 40,520 Chamberlain NI = 425,300 - 40,520 = 384,780

Under the partial equity method, the parent records on its internal financial records its share of subsidiary dividends as a reduction to its investment account. its share of reported subsidiary income. its share of the subsidiary's amortization of excess acquisition-date fair over book value amortizations.

a, b

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 a) only the consideration transferred by the parent. b) the fair value of the noncontrolling interest. c) the subsidiary's carrying value of the noncontrolling interest. d) the fair value of the controlling interest.

a, b, d

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

b, d

Following a step acquisition that results in 80% ownership and control, what amounts does the parent include in Investment in Subsidiary account based on the equity method. 100% of post-control subsidiary net income less excess acquisition-date fair value amortization. 80% of post-control subsidiary dividends as a deduction. The parent's pre-control subsidiary investment at control-date fair value. 80% of post-control subsidiary net income less excess control acquisition-date fair value amortization.

b, c, d

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

a

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

b, c, d

On April 1, Pujols, Inc., exchanges $601,600 for 70 percent of the outstanding stock of Ramirez Corporation. The remaining 30 percent of the outstanding shares continued to trade at a collective fair value of $236,600. Ramirez's identifiable assets and liabilities each had book values that equaled their fair values on April 1 for a net total of $718,000. During the remainder of the year, Ramirez generates revenues of $670,000 and expenses of $376,000 and declared no dividends. On a December 31 consolidated balance sheet, what amount should be reported as noncontrolling interest?

324,800 Fair Value of 30% NCI on 4/1 = 236,600 30% of NI for remained of year = 294,000 x 30% = 88,200 NCI 12/31 = add together = 324,800

Which of the following are identified and measured by an acquiring firm as of the date of a 90% subsidiary acquisition. a) Goodwill or a gain from bargain purchase. b) Noncontrolling interest at acquisition-date fair value. c) 100% of all subsidiary assets and liabilities at full fair values. d) 90% of all subsidiary assets and liabilities at full fair value.

a, b, c

Following a step acquisition that results in 80% ownership and control, what amounts does the parent include in Investment in Subsidiary account based on the equity method. 80% of post-control subsidiary dividends as a deduction. The parent's pre-control subsidiary investment at control-date fair value. 80% of post-control subsidiary net income less excess control acquisition-date fair value amortization. 100% of post-control subsidiary net income less excess acquisition-date fair value amortization.

a, b, c

On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: Park Strand Current assets $ 87,750 $ 14,750 Noncurrent assets 109,000 49,500 Total assets $ 196,750 $ 64,250 Current liabilities $ 46,750 $ 14,250 Long-term debt 60,000 0 Stockholders' equity 90,000 50,000 Total liabilities and equities $ 196,750 $ 64,250 On January 2, Park borrowed $64,800 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considered proportionate to Strand's total fair value. The $64,800 debt is payable in 10 equal annual principal payments, plus interest, beginning December 31. The excess fair value of the investment over the underlying book value of the acquired net assets is allocated to inventory (60 percent) and to goodwill (40 percent). On a consolidated balance sheet as of January 2, what should be the amount for stockholders' equity?

106,200 Park stockholders' equity $ 90,000 Noncontrolling interest at fair value (20% × $81,000) 16,200 Total stockholders' equity $ 106,200

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

b

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

a, c

The allocation of goodwill across the controlling and noncontrolling interests does not always result in an allocation proportional to percentage ownership interests. proceeds in a similar fashion when the business combination resulted in a bargain purchase. always results in all goodwill being allocated to the parent company. compares acquisition date total fair values to the relative (proportional) fair values of the subsidiary's identifiable net assets.

a, d

When will the acquisition-date fair values of the shares owned by the controlling and non-controlling interest equal one another? a) When the acquired subsidiary's shares are not actively traded in an exchange market. b) When the parents acquires its shares in the subsidiary without paying a control premium. c) When the acquired subsidiary's shares shares are actively traded in an exchange market. d) When the per share price paid by the parent is representative of the acquiree's total acquisition-date fair value.

b, d

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

b, c

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

a, c, d

Amie, Inc., has 103,000 shares of $2 par value stock outstanding. Prairie Corporation acquired 30,900 of Amie's shares on January 1, 2018, for $123,600 when Amie's net assets had a total fair value of $337,300. On July 1, 2021, Prairie bought an additional 61,800 shares of Amie from a single stockholder for $6 per share. Although Amie's shares were selling in the $5 range around July 1, 2021, Prairie forecasted that obtaining control of Amie would produce significant revenue synergies to justify the premium price paid. If Amie's identifiable net assets had a fair value of $497,300 at July 1, 2021, how much goodwill should Prairie report in its postcombination consolidated balance sheet?

79,500 30% previously owned = 30,900 x 5 = 154,500 60% new shares = 61,800 x 6 = 370,800 10% NCI fair value = 10,300 x 5 = 51,500 acquisition date fair value = add above = 576,800 net assets' fair value = 497,300 goodwill = difference = 79,500

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? Postacquisition subsidiary revenues and expenses are excluded from consolidated revenues and expenses. Preacquisition subsidiary revenues and expenses are included in consolidated revenues and expenses. Preacquisition subsidiary revenues and expenses are excluded from consolidated revenues and expenses. Postacquisition subsidiary revenues and expenses are included in consolidated revenues and expenses.

c, d

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 subsidiary's identifiable net assets, then the acquiring company recognizes

goodwill

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 a) a loss on acquisition of noncontrolling shares. b) a decrease in the parent's additional paid-in capital. c) a gain on acquisition of noncontrolling shares. d) an increase in the parent's additional paid-in capital.

d

Jordan, Inc., holds 75 percent of the outstanding stock of Paxson Corporation. Paxson currently owes Jordan $462,500 for inventory acquired over the past few months. In preparing consolidated financial statements, what amount of this debt should be eliminated?

$462,500 In consolidating the subsidiary's figures, all intra-entity balances must be eliminated in their entirety for external reporting purposes. Even though the subsidiary is less than fully owned, the parent nonetheless controls it.

A parent buys 32 percent of a subsidiary in one year and then buys an additional 40 percent in the next year. In a step acquisition of this type, the original 32 percent acquisition should be a) Adjusted to its equity method balance at the date of the second acquisition. b) maintained at its initial value c) Adjusted to fair value at the date of the second acquisition with any resulting gain or loss recognized. d) Adjusted to fair value at the date of the second acquisition with a resulting adjustment to additional paid-in capital.

C

The amount for the noncontrolling interest is reported in the consolidated balance sheet in the

SOE section

True or false: An equity method investment account following a series of stock purchases that result in control will include pre-control investments at control-date fair value.

TRUE

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? a) The parent's previously held noncontrolling interest is adjusted to fair value and a gain or loss is recognized. b) The parent's previously held noncontrolling interest is adjusted to fair value with a corresponding adjustment to additional paid-in capital. c) The carrying amount of the parent's previously held noncontrolling interest is deducted from stockholders' equity. d) The parent's previously held noncontrolling interest remains at its previous carrying amount.

a

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

a

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 ______ date.

acquisition

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? a) Company B will be valued as the sum of the preacquisition equity method balance plus the purchase price that established control. b) Company B will be valued in total at its control-date fair value. c) Company B will be valued in total as the sum of the acquisition prices of each of the series of purchases.

b

Examining the Exhibit 4.6 consolidation worksheet when the parent accounts for its 80% owned subsidiary using the equity method, what new financial statement balances are created in the consolidation process beyond the balances reflected in the parent (King Company) and subsidiary (Pawn Company) columns? Cost of goods sold and revenues Noncontrolling interest in Pawn at 12/31 Net income attributable to noncontrolling interest Consolidated net income

b, c, d

Consolidation Entry A adjusts subsidiary assets and liabilities for any excess acquisition-date excess fair over book values. The Consolidation Entry A adjustment to the subsidiary's assets and liabilities is net of a) post-acquisition subsidiary net income or net loss. b)all post-acquisition amortizations of subsidiary assets and liabilities. c) previous period's excess fair over book value amortizations. d) allocations to the non-controlling interests.

c

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

c

Consolidated retained earnings equal the parent's retained earnings when the parent accounts for its Investment in Subsidiary using a) the initial value method. b) the partial equity method. c) the fair value method. d) the equity method.

d

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

d

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 _____ attributable to the noncontrolling interest.

dividends

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 _____ method for subsidiary income accruals.

equity

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

equity

Consolidation Entry A2 is required when _____ is disproportionately allocated to the parent and noncontrolling ownerships.

goodwill

When a parent company employs the equity method. consolidation Entry D eliminates subsidiary dividends attributable to the _____ company.

parent

The extra price per share paid to ensure a controlling interest in a business combination is referred to as a control _____

premium

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

removed

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 ______ to fair value of the parent's previously owned investments in the subsidiary

revaluation

The noncontrolling interest's share of consolidated net income is limited to its proportional ownership of the subsidiary's shares multiplied by the ______ net income adjusted for excess acquisition-date fair value amortizations.

subsidiary's

True or false: Consolidation Entry E does not vary depending on the controlling percentage of the subsidiary owned by the parent.

true

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

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

D

On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: Park Strand Current assets $ 87,750 $ 14,750 Noncurrent assets 109,000 49,500 Total assets $ 196,750 $ 64,250 Current liabilities $ 46,750 $ 14,250 Long-term debt 60,000 0 Stockholders' equity 90,000 50,000 Total liabilities and equities $ 196,750 $ 64,250 On January 2, Park borrowed $64,800 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considered proportionate to Strand's total fair value. The $64,800 debt is payable in 10 equal annual principal payments, plus interest, beginning December 31. The excess fair value of the investment over the underlying book value of the acquired net assets is allocated to inventory (60 percent) and to goodwill (40 percent). On a consolidated balance sheet as of January 2, what should be the amount for noncurrent liabilities?

118,320 Add the two book values and include 90% (the $58,320 noncurrent portion) of the loan taken out by Park to acquire Strand.

On January 1, 2020, Grand Haven, Inc., reports net assets of $933,650 although equipment (with a four-year remaining life) having a book value of $536,000 is worth $598,250 and an unrecorded patent is valued at $54,900. Van Buren Corporation pays $840,640 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, 2021?

42,700 Patent FV at 1/1 = 54,900 Amortization for 2 years (9 year remaining life) = (12,200) Patent at 12/31 = 42,700

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

a

Why are two separate consolidation entries (A1 and A2) useful when the parent has paid a control premium for its controlling, but partial interest in a subsidiary? Because the unamortized acquisition-date excess fair values are allocated proportionately across ownership interests. Because the presence of a control premium affects primarily the parent shares. Because goodwill is not allocated proportionately across the ownership interests. Because all goodwill must be allocated to the controlling interest when a control premium is present.

a, b, c

What accounting treatment applies when a parent sells some of its subsidiary's shares, but nonetheless retains control over the subsidiary? The parent recognizes any difference between the proceeds and the underlying carrying amount of the shares sold as an adjustment to APIC. The parent recognizes in its current year income statement either a gain or loss on the subsidiary shares sold. The sale of the subsidiary shares is considered a transaction within the consolidated entity.

a, c

When active trades are unavailable, which of the following are useful techniques for estimating the acquisition-date fair value of a noncontrolling interest? a) Discounted future cash flow estimations. b)Historical prices from past trades. c) Residual income projections

a, c

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

a, c

When the parent company employs the partial equity method for its Investment in Subsidiary account, Consolidation Entry asterisk C is needed to adjust the parent's RE for excess fair value ______ expenses from the acquisition date to the beginning of the current period.

amortization

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? a) 80 b) 0 c) 20 d) 100

c

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

controls

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? a) 0% b) 20% c) 80% d) 100%

d

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? a) 100 b) 0 c) 80 d) 20

d

True or false: Quoted prices in active markets are required to properly value the equity shares held by a noncontrolling interest.

false

McKinley, Inc., owns 100 percent of Jackson Company's 45,000 voting shares. On June 30, McKinley's internal accounting records show a $192,000 equity method balance for its investment in Jackson. McKinley sells 15,000 of its Jackson shares on the open market for $80,000 on June 30. How should McKinley record the excess of the sale proceeds over its carrying amount for the shares? a) increase APIC by $16,000 b) Recognize a revaluation gain on its remaining shares of $48,000. c) reduce goodwill by 64,000 d) recognize a gain on sale of $16,000

A Proceeds of $80,000 less $64,000 (1/3 × $192,000) book value = $16,000 Control is maintained so excess proceeds go to APIC.

James Company acquired 85 percent of Mark-Right Company on April 1. On its December 31 consolidated income statement, how should James account for Mark-Right's revenues and expenses that occurred before April 1? a) Include 100 percent of Mark-Right's revenues and expenses and deduct the preacquisition portion as noncontrolling interest in net income. b) Exclude 100 percent of the preacquisition revenues and 100 percent of the preacquisition expenses from their respective consolidated totals. c) Deduct 15 percent of the net combined revenues and expenses relating to the preacquisition period from consolidated net income. d) Exclude 15 percent of the preacquisition revenues and 15 percent of the preacquisition expenses from consolidated expenses.

B

The noncontrolling interest represents an outside ownership in a subsidiary that is not attributable to the parent company. Where in the consolidated balance sheet is this outside ownership interest recognized? a) in the liability section b) in the owners' equity section c) The noncontrolling interest is not recognized in the consolidated balance sheet. d) In a mezzanine section between liabilities and owners' equity.

B

What is a basic premise of the acquisition method regarding accounting for a NCI? a) Consolidated financial statements should be produced only if both the parent and the subsidiary are in the same basic industry. b) A subsidiary is an indivisible part of a business combination and should be included in its entirety regardless of the degree of ownership. c) Consolidated financial statements should be primarily for the benefit of the parent company's stockholders. d) Consolidated financial statements should not report a noncontrolling interest balance because these outside owners do not hold stock in the parent company.

B

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

c

Following the ______ _______ 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

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

fair

Regardless of its percentage ownership, when a parent acquires control over a subsidiary, the parent must recognize the 100% of the subsidiary's assets and liabilities at their acquisition-date ____ values.

fair

The valuation principle for reporting the acquisition-date amount of a non-controlling interest is _____ value

fair

True or false: Under the acquisition method, a new basis of accountability arises on the date one company gains control over another, regardless of previous ownership.

true

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

zero

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? a) 20% b) 0% c) 80% d) 100%

c

A parent company owns 80% of the voting stock of a subsidiary. What percentage of the subsidiary's revenues and expenses are consolidated? a) 0% b) 20% c) 100% d) 80%

c

Which of the following are included in the calculation of Pawn Company's end-of-year 20% noncontrolling interest when the parent has paid a control premium? 20% of the subsidiary's beginning-of-year book value. Current year net income allocation to the noncontrolling interest. 20% of the excess fair value allocation for the subsidiary's beginning-of-year identifiable net assets. 20% of the goodwill recognized in the business combination.

a, b, c

When the parent applies the equity method, which of the following balances are the same across the parent company accounts and consolidated balances? a) Equity in subsidiary earnings. b) Retained earnings. c) Consolidated net income. d) Current assets.

b

Why is the goodwill shown in Exhibit 4.3 allocated to the controlling and noncontrolling interests according to their proportionate ownership percentages in the subsidiary? a) All identifiable assets acquired in a business combination are allocated proportionately across controlling and noncontrolling interests. b) All intangible assets acquired in a business combination are allocated proportionately across controlling and noncontrolling interests. c) The parent paid a control premium in acquiring its 80% interest in the subsidiary. d) The per share acquisition-date values of the shares owned by both the controlling and noncontrolling interests are identical.

d

Under the partial equity method, the parent records on its internal financial records its share of the subsidiary's amortization of excess acquisition-date fair over book value amortizations. its share of reported subsidiary income. its share of subsidiary dividends as a reduction to its investment account.

b, c

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? a) The excess unamortized acquisition-date fair value is allocated to the noncontrolling interest using their percentage ownership in the subsidiary. b) All of the excess unamortized acquisition-date fair value is allocated to the noncontrolling interest. c) None of the excess unamortized acquisition-date fair value is allocated to the noncontrolling interest.

a

What impact does the presence of a control premium have on the calculation of the nontcontrolling interest? a) The amount of goodwill from the combination is included disproportionately in the total noncontrolling interest. b) Current year net income allocation is based on a percentage less than the noncontrolling interest's share. c) The presence of a control premium does not affect the calculation of the amount of the noncontrolling interest.

a

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? a) The parent recognizes either a gain or loss on the shares sold. b) The parent recognizes any difference between the proceeds and the underlying carrying amount of the shares sold as an adjustment to APIC. c) The sale of subsidiary stock is considered an equity transaction.

a

The computation of the noncontrolling interest (NCI) share of consolidated net income includes a) the NCI's proportional ownership of the subsidiary's net income. b) an adjustment for the NCI's share of excess acquisition-date fair value allocation amortization. c) the NCI's proportional ownership multiplied by consolidated net income.

a, b

When a business acquisition resulting in control takes place midyear, how is the consolidation process affected? 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. Only post-acquisition subsidiary expenses are included in consolidated totals. Subsidiary book value must be computed as of the acquisition date.

a, c, d

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

b, d

When will the acquisition-date fair values of the shares owned by the controlling and non-controlling interest equal one another? When the acquired subsidiary's shares shares are actively traded in an exchange market. When the acquired subsidiary's shares are not actively traded in an exchange market. When the per share price paid by the parent is representative of the acquiree's total acquisition-date fair value. When the parents acquires its shares in the subsidiary without paying a control premium.

c, d

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

component of owners' equity

When the acquisition-date subsidiary fair value per share is ____ for a parent company and the noncontrolling interest, then goodwill is allocated proportionately across the two ownership interests.

equal

Mittelstaedt, Inc., buys 60 percent of the outstanding stock of Sherry, Inc. Sherry owns a piece of land that cost $219,000 but had a fair value of $541,000 at the acquisition date. What value should be attributed to this land in a consolidated balance sheet at the date of takeover? a) 131,400 b) 322,000 c) 409,600 d) 541,000

541,000 At the date control is obtained, the parent consolidates subsidiary assets at fair value ($541,000 in this case) regardless of the parent's percentage ownership.

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

a, b

On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: Park Strand Current assets $ 87,750 $ 14,750 Noncurrent assets 109,000 49,500 Total assets $ 196,750 $ 64,250 Current liabilities $ 46,750 $ 14,250 Long-term debt 60,000 0 Stockholders' equity 90,000 50,000 Total liabilities and equities $ 196,750 $ 64,250 On January 2, Park borrowed $64,800 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considered proportionate to Strand's total fair value. The $64,800 debt is payable in 10 equal annual principal payments, plus interest, beginning December 31. The excess fair value of the investment over the underlying book value of the acquired net assets is allocated to inventory (60 percent) and to goodwill (40 percent). On a consolidated balance sheet as of January 2, what should be the amount for current assets?

121,100 Acquisition-date fair value ($64,800 ÷ 80%) = 81,000 Strand's book value = (50,000 ) Fair value in excess of book value = $ 31,000 Excess assigned to inventory (60%) = $ 18,600 Excess assigned to goodwill (40%) = $ 12,400 Park current assets = $ 87,750 Strand current assets = 14,750 Excess inventory fair value = 18,600 Consolidated current assets = $ 121,100

On January 1, 2019, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc., for $531,000 cash. The acquisition-date fair value of the noncontrolling interest was $59,000. At January 1, 2019, Star's net assets had a total carrying amount of $412,000. Equipment (eight-year remaining life) was undervalued on Star's financial records by $51,200. Any remaining excess fair value over book value was attributed to a customer list developed by Star (four-year remaining life), but not recorded on its books. Star recorded net income of $44,800 in 2019 and $51,200 in 2020. Each year since the acquisition, Star has declared a $12,800 dividend. At January 1, 2021, Pride's retained earnings show a $160,000 balance. Selected account balances for the two companies from their separate operations were as follows: Pride Star 2021 Revenues $ 318,800 $ 182,400 2021 Expenses 224,000 124,800 Assuming that Pride, in its internal records, accounts for its investment in Star using the equity method, what amount of retained earnings would Pride report on its January 1, 2021, consolidated balance sheet?

160,000 Under the equity method, consolidated RE = parent's RE.

On January 1, 2019, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc., for $531,000 cash. The acquisition-date fair value of the noncontrolling interest was $59,000. At January 1, 2019, Star's net assets had a total carrying amount of $412,000. Equipment (eight-year remaining life) was undervalued on Star's financial records by $51,200. Any remaining excess fair value over book value was attributed to a customer list developed by Star (four-year remaining life), but not recorded on its books. Star recorded net income of $44,800 in 2019 and $51,200 in 2020. Each year since the acquisition, Star has declared a $12,800 dividend. At January 1, 2021, Pride's retained earnings show a $160,000 balance. Selected account balances for the two companies from their separate operations were as follows: Pride Star 2021 Revenues $ 318,800 $ 182,400 2021 Expenses 224,000 124,800 What is 2021 Consolidated Net Income?

114,300 Consideration transferred: 531,000 NCI FV: 59,000 Star acquisition-date fair value = 531,000 + 59,000 = 590,000 Star book value = (412,000) Excess fair over book = 590 - 412 = 178,000 equipment = 51,200 ---> 6400 customer list = 126,800 ---> 31700 31700 + 6400 = 38,100 combined revenue = 501,200 combined expense = 348,800 amortization = 38,100 consolidated NI = 501,200 - 348,800 - 38,100 = 114,300

On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: Park Strand Current assets $ 87,750 $ 14,750 Noncurrent assets 109,000 49,500 Total assets $ 196,750 $ 64,250 Current liabilities $ 46,750 $ 14,250 Long-term debt 60,000 0 Stockholders' equity 90,000 50,000 Total liabilities and equities $ 196,750 $ 64,250 On January 2, Park borrowed $64,800 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considered proportionate to Strand's total fair value. The $64,800 debt is payable in 10 equal annual principal payments, plus interest, beginning December 31. The excess fair value of the investment over the underlying book value of the acquired net assets is allocated to inventory (60 percent) and to goodwill (40 percent). On a consolidated balance sheet as of January 2, what should be the amount for noncurrent assets?

170,900 Park noncurrent assets $ 109,000 Strand noncurrent assets 49,500 Excess fair value to goodwill 12,400 Consolidated noncurrent assets $ 170,900

On January 1, 2020, French Company acquired 60 percent of K-Tech Company for $324,000 when K-Tech's book value was $424,000. The fair value of the newly comprised 40 percent noncontrolling interest was assessed at $216,000. At the acquisition date, K-Tech's trademark (10-year remaining life) was undervalued in its financial records by $80,000. Also, patented technology (5-year remaining life) was undervalued by $36,000. In 2020, K-Tech reports $22,000 net income and declares no dividends. At the end of 2021, the two companies report the following figures (stockholders' equity accounts have been omitted): French CompanyCarrying Amounts K-Tech CompanyCarrying Amounts K-Tech CompanyFair Values Current assets $ 636,000 $ 316,000 $ 336,000 Trademarks 276,000 216,000 296,000 Patented technology 426,000 166,000 202,000 Liabilities (406,000 ) (136,000 ) (136,000 ) Revenues (916,000 ) (416,000 ) Expenses 484,000 316,000 Investment income Not given In 2021, assuming K-Tech has declared no dividends, what are the noncontrolling interest's share of the subsidiary's income and the ending balance of the noncontrolling interest in the subsidiary?

33,920 and 252,640 K-Tech NI (100,000 - 15,200 excess amort) = 84,800 NCI % = 40% NCI NI = 33,920 acquisition date NCI FV = 216,000 40% of 22,000 NI = 8,800 40% of excess amortization = (6080) NCI NI = 33,920 NCI at EOY = 252,640

On January 1, 2020, French Company acquired 60 percent of K-Tech Company for $324,000 when K-Tech's book value was $424,000. The fair value of the newly comprised 40 percent noncontrolling interest was assessed at $216,000. At the acquisition date, K-Tech's trademark (10-year remaining life) was undervalued in its financial records by $80,000. Also, patented technology (5-year remaining life) was undervalued by $36,000. In 2020, K-Tech reports $22,000 net income and declares no dividends. At the end of 2021, the two companies report the following figures (stockholders' equity accounts have been omitted): French CompanyCarrying Amounts K-Tech CompanyCarrying Amounts K-Tech CompanyFair Values Current assets $ 636,000 $ 316,000 $ 336,000 Trademarks 276,000 216,000 296,000 Patented technology 426,000 166,000 202,000 Liabilities (406,000 ) (136,000 ) (136,000 ) Revenues (916,000 ) (416,000 ) Expenses 484,000 316,000 Investment income Not given What is the 2021 consolidated net income before allocation to the controlling and noncontrolling interests?

516,800 Combined revenues = 1,332,000 combined expenses = (800,000) trademark amortization = (8000) patented tech amortization = (7200) consolidated NI = combine above = 516,800

On January 1, 2020, French Company acquired 60 percent of K-Tech Company for $324,000 when K-Tech's book value was $424,000. The fair value of the newly comprised 40 percent noncontrolling interest was assessed at $216,000. At the acquisition date, K-Tech's trademark (10-year remaining life) was undervalued in its financial records by $80,000. Also, patented technology (5-year remaining life) was undervalued by $36,000. In 2020, K-Tech reports $22,000 net income and declares no dividends. At the end of 2021, the two companies report the following figures (stockholders' equity accounts have been omitted): French CompanyCarrying Amounts K-Tech CompanyCarrying Amounts K-Tech CompanyFair Values Current assets $ 636,000 $ 316,000 $ 336,000 Trademarks 276,000 216,000 296,000 Patented technology 426,000 166,000 202,000 Liabilities (406,000 ) (136,000 ) (136,000 ) Revenues (916,000 ) (416,000 ) Expenses 484,000 316,000 Investment income Not given What amount is reported for trademarks in the 2021 consolidated balance sheet?

556,000 French Trademark = 276,000 K-Tech Trademark = 216,000 Acquisition date fair value allocation = 80,000 Excess amortization for 2 years = (16,000) Consolidated trademarks = 556,000

On January 1, Park Corporation and Strand Corporation had condensed balance sheets as follows: Park Strand Current assets $ 87,750 $ 14,750 Noncurrent assets 109,000 49,500 Total assets $ 196,750 $ 64,250 Current liabilities $ 46,750 $ 14,250 Long-term debt 60,000 0 Stockholders' equity 90,000 50,000 Total liabilities and equities $ 196,750 $ 64,250 On January 2, Park borrowed $64,800 and used the proceeds to obtain 80 percent of the outstanding common shares of Strand. The acquisition price was considered proportionate to Strand's total fair value. The $64,800 debt is payable in 10 equal annual principal payments, plus interest, beginning December 31. The excess fair value of the investment over the underlying book value of the acquired net assets is allocated to inventory (60 percent) and to goodwill (40 percent). On a consolidated balance sheet as of January 2, what should be the amount for current liabilities?

67,480 Add the two book values and include 10% (the $6,480 current portion) of the loan taken out by Park to acquire Strand.