Exam 4: Consolidation of Non-Wholly Owned Subsidiaries

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: Parent Inc Sub Inc Sub Inc (caryying value) (carrying value) (fair value) Cash \ 180,000 \ 36,000 \ 36,000 Accounts Receivable \ 100,000 \ 40,000 \ 40,000 Inventory \ 60,000 \ 24,000 \ 27,000 Plant and Equipment (net) \ 200,000 \ 80,000 \ 93,000 Goodwill \- \ 8,000 Trademark \- \ 12,000 \ 15,000 Total Assets \ \ 200,000 Current Liabilities \ 80,000 \ 50,000 \ 50,000 Bonds Payable \ 320,000 \ 20,000 \ 24,000 Common Shares \ 90,000 \ 80,000 Retained Earnings \ 50,000 \ 50,000 Total Liabilities and Equity \ 540,000 \ 200,000 Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, what amount would appear in the Non-Controlling Interest (NCI) Account on the Consolidated Balance Sheet on the date of acquisition if the identifiable net assets (INA) method were used?

If the non-controlling interest at acquisition is based on the fair value of the subsidiary's identifiable net assets, which consolidation method is being applied?

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: Parent Inc Sub Inc Sub Inc (caryying value) (carrying value) (fair value) Cash \ 180,000 \ 36,000 \ 36,000 Accounts Receivable \ 100,000 \ 40,000 \ 40,000 Inventory \ 60,000 \ 24,000 \ 27,000 Plant and Equipment (net) \ 200,000 \ 80,000 \ 93,000 Goodwill \- \ 8,000 Trademark \- \ 12,000 \ 15,000 Total Assets \ \ 200,000 Current Liabilities \ 80,000 \ 50,000 \ 50,000 Bonds Payable \ 320,000 \ 20,000 \ 24,000 Common Shares \ 90,000 \ 80,000 Retained Earnings \ 50,000 \ 50,000 Total Liabilities and Equity \ 540,000 \ 200,000 Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, what amount would appear in the Non-Controlling Interest (NCI) Account on the Consolidated Balance Sheet on the date of acquisition if the proportionate consolidation method were used?

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: Parent Inc Sub Inc Sub Inc (caryying value) (carrying value) (fair value) Cash \ 180,000 \ 36,000 \ 36,000 Accounts Receivable \ 100,000 \ 40,000 \ 40,000 Inventory \ 60,000 \ 24,000 \ 27,000 Plant and Equipment (net) \ 200,000 \ 80,000 \ 93,000 Goodwill \- \ 8,000 Trademark \- \ 12,000 \ 15,000 Total Assets \ \ 200,000 Current Liabilities \ 80,000 \ 50,000 \ 50,000 Bonds Payable \ 320,000 \ 20,000 \ 24,000 Common Shares \ 90,000 \ 80,000 Retained Earnings \ 50,000 \ 50,000 Total Liabilities and Equity \ 540,000 \ 200,000 Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, what would be the amount of goodwill appearing on the Consolidated Balance Sheet on the date of acquisition if the proportionate consolidation method were used?

Jean Inc and John Inc had the following balance sheets on August 31, 2019: Jean Inc. John Inc. John Inc. (carryingvalue) (carrying value) (fair value) Cash \ 1,200,000 \ 300,000 \ 300,000 Accounts Receivable \ 400,000 \ 64,000 \ 64,000 Inventory \ 240,000 \ 80,000 \ 60,000 Plant and Equipment (net) \ 860,000 \ 256,000 \ 300,000 Trademark \ 20,000 \ 36,000 Total Assets \ 2,700,000 \ 720,000 Accounts Payable \ 1,500,000 \ 300,000 \ 300,000 Bonds Payable \ 600,000 \ 240,000 \ 210,000 Common Shares \ 500,000 \ 60,000 Retained Earnings \ 100,000 \ 120,000 Total Liabilities and Equity \ 2,700,000 \ 720,000 On August 31, 2019, Jean's date of acquisition, Jean Inc. purchased 90% of John Inc. for cash consideration of $400,000. Assuming the above balance sheets were prepared immediately before the acquisition, prepare Jean Inc's consolidated balance sheet on the date of acquisition using the Proportionate Consolidation Method.

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: Parent Inc Sub Inc Sub Inc (caryying value) (carrying value) (fair value) Cash \ 180,000 \ 36,000 \ 36,000 Accounts Receivable \ 100,000 \ 40,000 \ 40,000 Inventory \ 60,000 \ 24,000 \ 27,000 Plant and Equipment (net) \ 200,000 \ 80,000 \ 93,000 Goodwill \- \ 8,000 Trademark \- \ 12,000 \ 15,000 Total Assets \ \ 200,000 Current Liabilities \ 80,000 \ 50,000 \ 50,000 Bonds Payable \ 320,000 \ 20,000 \ 24,000 Common Shares \ 90,000 \ 80,000 Retained Earnings \ 50,000 \ 50,000 Total Liabilities and Equity \ 540,000 \ 200,000 Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, the assets section of Parent's consolidated balance sheet on the date of acquisition would total to what amount under the fair value enterprise method?

One weakness associated with the fair value enterprise method is that:

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: Parent Inc Sub Inc Sub Inc (caryying value) (carrying value) (fair value) Cash \ 180,000 \ 36,000 \ 36,000 Accounts Receivable \ 100,000 \ 40,000 \ 40,000 Inventory \ 60,000 \ 24,000 \ 27,000 Plant and Equipment (net) \ 200,000 \ 80,000 \ 93,000 Goodwill \- \ 8,000 Trademark \- \ 12,000 \ 15,000 Total Assets \ \ 200,000 Current Liabilities \ 80,000 \ 50,000 \ 50,000 Bonds Payable \ 320,000 \ 20,000 \ 24,000 Common Shares \ 90,000 \ 80,000 Retained Earnings \ 50,000 \ 50,000 Total Liabilities and Equity \ 540,000 \ 200,000 Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, what amount would appear in the Non-Controlling Interest (NCI) Account on the Consolidated Balance Sheet if the fair value enterprise (FVE) method were used?

HRN Enterprises Inc. (HRN) purchases 80% of the outstanding voting shares of NHR Inc. on January 1, 2018. HRN is using the fair value enterprise (FVE) consolidation method. On that date, which of the following statements pertaining to the non-controlling interest (NCI) is TRUE?

In the event of a negative acquisition differential, under what circumstances is it still possible to have positive goodwill?

When a contingent consideration arising from a business combination is classified as a liability, how is any change in its fair value as a result of new information about the facts and circumstances that existed at the acquisition date accounted for if identified and measured within one year subsequent to the acquisition date?

A Co. has acquired an 80% controlling interest in B Co. If using the proportionate consolidation method, the consolidated balance sheet on the date of acquisition, will contain:

Which of the following is the best approach to determine the fair value of the non-controlling interest under the fair value enterprise method?

Which of the following is a TRUE statement pertaining to a bargain purchase?

Non-controlling interest (NCI) is presented under the liabilities section of the consolidated balance sheet under the:

Parent Inc. and Sub Inc. had the following balance sheets on July 31, 2019: Parent Inc Sub Inc Sub Inc (caryying value) (carrying value) (fair value) Cash \ 180,000 \ 36,000 \ 36,000 Accounts Receivable \ 100,000 \ 40,000 \ 40,000 Inventory \ 60,000 \ 24,000 \ 27,000 Plant and Equipment (net) \ 200,000 \ 80,000 \ 93,000 Goodwill \- \ 8,000 Trademark \- \ 12,000 \ 15,000 Total Assets \ \ 200,000 Current Liabilities \ 80,000 \ 50,000 \ 50,000 Bonds Payable \ 320,000 \ 20,000 \ 24,000 Common Shares \ 90,000 \ 80,000 Retained Earnings \ 50,000 \ 50,000 Total Liabilities and Equity \ 540,000 \ 200,000 Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2019 for cash of $180,000, the Shareholders' Equity section of Parent's consolidated balance sheet on the date of acquisition would total to what amount if the identifiable net assets (INA) method were used?

Various methods have been proposed as solutions to preparing consolidated financial statements for non-wholly owned subsidiaries. Provide the methods and include your reasoning to support the method(s) that is/are being adopted under IFRS.

Contingent consideration should be valued at:

A business combination involves a contingent consideration. As a result, two years after the acquisition date, the acquirer was required to issue an additional 40,000 common shares at a time when the fair value of the common shares was $4 per share. What effect would this transaction have on the balance in the common shares account in the consolidated financial statements on the date of acquisition?

Jean and John Inc had the following balance sheets on August 31, 2019: Jean Inc. John Inc. John Inc. (carryingvalue) (carrying value) (fair value) Cash \ 1,200,000 \ 300,000 \ 300,000 Accounts Receivable \ 400,000 \ 64,000 \ 64,000 Inventory \ 240,000 \ 80,000 \ 60,000 Plant and Equipment (net) \ 860,000 \ 256,000 \ 300,000 Trademark \ 20,000 \ 36,000 Total Assets \ 2,700,000 \ 720,000 Accounts Payable \ 1,500,000 \ 300,000 \ 300,000 Bonds Payable \ 600,000 \ 240,000 \ 210,000 Common Shares \ 500,000 \ 60,000 Retained Earnings \ 100,000 \ 120,000 Total Liabilities and Equity \ 2,700,000 \ 720,000 On August 31, 2019, Jean's date of acquisition, Jean Inc. purchased 90% of John Inc. for cash consideration of $400,000. Assuming the above balance sheets were prepared immediately before the acquisition, prepare Jean Inc's consolidated balance sheet on the date of acquisition using the Fair Value Enterprise Method.