Exam 4: Consolidation of Non-Wholly Owned Subsidiaries

What value should be recorded as the fair value of a contingent consideration arising from a business acquisition when it is classified as a liability?

The Shareholders' Equity section of Parent's consolidated balance sheet on the date of acquisition would total what amount under the Entity Method?

A business combination involves a contingent consideration. It is considered 70% probable that a payment of $500,000 will become payable three years after the acquisition date. Using a 7% discount rate, what liability should be recorded for the contingent consideration on the acquisition date?

The purchase price of an entity includes:

Contingent consideration will be classified as a liability when:

Assume that Parent Inc. purchased a controlling interest in Sub Inc. on August 1, 2018 and decides to prepare an Income Statement for the combined entity on the date of acquisition. If Parent acquired 80% of Sub Inc. on that date, what would be the net income reported for the combined entity (for the year ended July 31, 2018)?

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

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?

Assuming that Parent Inc acquires 80% of Sub Inc on August 1, 2018, what amount would appear in the Non-Controlling Interest (NCI) Account on the Consolidated Balance Sheet on the date of acquisition if the Proprietary Method were used?

Discuss the disclosure requirements for long term investments including accounting policies and non-controlling interest (NCI).

If a business combination occurs and the consideration paid exceeds the fair value of the identifiable net assets of the subsidiary on the acquisition date and the parent acquires less than 100% of the outstanding common shares of the subsidiary, which consolidation method will result in the highest value for non-controlling interest on the acquisition date?

Assuming the Entity Theory was applied, what would be the amount of Goodwill appearing on the Consolidated Balance Sheet on the Date of acquisition, assuming that Parent purchased 80% of Sub Inc. for $180,000?

Assuming that Parent Inc. purchased 80% of Sub's voting shares on the date of acquisition (August 1, 2018) for $180,000, what would be the amount of the Non-Controlling Interest (NCI) on the date of acquisition if the Entity Method were used?

Keen Inc. and Lax Inc. had the following balance sheets on October 31, 2018: Keen Inc Lax Inc Lax Inc (carry ing value) (carrying value) (fair value) Cash \ 300,000 \ 80,000 \ 80,000 Accounts Receivable \ 60,000 \ 24,000 \ 24,000 Inventory \ 30,000 \ 54,000 \ 50,000 Plant and Equipment (net) \ 310,000 \ 280,000 \ 300,000 Trademark \ 12,000 \ 16,000 Total Assets \ 700,000 \ 450,000 Accounts Payable \ 150,000 \ 200,000 \ 200,000 Bonds Pay able \ 400,000 \ 120,000 \ 100,000 Common Shares \ 100,000 \ 60,000 Retained Earnings \ 50,000 \ 70,000 Total Labilities and Equiby \ 700,000 \ 450,000 Assuming that Keen Inc. purchases 100% of Lax Inc. for $200,000, prepare the consolidated balance sheet on the date of acquisition under the Entity Theory.

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?

Major Corporation issues 1,000,000 common shares for all of the outstanding common shares of Minor Corporation on August 1, Year 1. The shares issued have a fair market value of $40. In addition, the merger agreement provides that if the market price of Major's shares is below $60 two years from the date of the merger, Major will issue additional shares to the former shareholders of Minor Corporation in an amount that will compensate them for their loss of value. On August 1, Year 3, the stock market price of major's shares is $55. In accordance with their agreement, Major Corporation issues an additional number of shares. Required: a) Prepare the journal entry to record the issuance of the shares. b) Calculate the number of additional shares that Major Corporation will have to issue to the former shareholders of Minor Corporation. c) Prepare the journal entry to record the transaction under IFRS 3 Business Combinations. d) Are there any alternatives for recording the additional share issuance? e) What would be the required disclosure for this series of events?

Non-Controlling Interest (NCI) is presented in the Shareholders' Equity section of the Balance Sheet under:

One weakness associated with the Entity Theory is that:

Jean Inc and John Inc had the following balance sheets on August 31, 2018: Jean Inc. John Inc. John Inc. (carry ing value) (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 Pay able \ 600,000 \ 240,000 \ 210,000 Common Shares \ 500,000 \ 60,000 Retained Earnings \ 100,000 \ 120,000 Total Labilities and Equiby \ 2,700,000 \ 720,000 On August 31^, 2018, Jean's date of acquisition, Jean Inc. purchased 90% of John Inc. for $400,000. Prepare Jean Inc's consolidated balance sheet on the date of acquisition using the Proprietary Theory.

When the parent forms a new subsidiary: