Exam 4: Consolidation of Non-Wholly Owned Subsidiaries

Assume that the following draft balance sheet was prepared by a co-worker subsequent to Keen's 80% purchase of Lax Inc for $240,000. Assuming this balance sheet is devoid of technical errors, what can be concluded about the balance sheet below?

The Net Incomes for Parent and Sub Inc for the year ended July 31, 2012 were $120,000 and $60,000 respectively. Assume that Parent Inc. purchased a controlling interest in Sub Inc. on August 1, 2012 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, 2012)?

Assuming that Keen Inc. purchases 100% of Lax Inc. for $200,000, prepare: a) the journal entry that Keen Inc. would make to record the acquisition; b) the elimination entry necessary to produce consolidated balance sheet on the acquisition date.

Which statement about the differences between consolidation methods permitted under US GAAP and IFRS is true?

When the parent forms a new subsidiary:

When the acquisition differential is calculated and allocated, what will the consequence be of a "bargain purchase"?

The Net Incomes for Parent and Sub Inc for the year ended July 31, 2012 were $120,000 and $60,000 respectively. What would be the amount of Non-Controlling Interest appearing on the Consolidated Balance Sheet on the date of acquisition (August 1, 2012), under the Parent Company Method, assuming once again that Parent purchased 80% of Sub Inc. for $180,000?

The purchase price of an entity includes:

Any negative goodwill arising on the date of acquisition:

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?

When a contingent consideration arising from a business combination is classified as a liability, how is any difference between the original estimate of the amount to be paid and the actual amount paid accounted for if the difference arises due to a change in circumstances?

Under the Proprietary theory, Non-Controlling Interest is:

The Net Incomes for Parent and Sub Inc for the year ended July 31, 2012 were $120,000 and $60,000 respectively. Assuming once again that the Proprietary Theory was applied, what would be the amount of Goodwill appearing on the Consolidated Balance Sheet on the Date of acquisition, assuming once again that Parent purchased 80% of Sub Inc. for $180,000 on August 1, 2012?

On August 31, 2012, 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.

Non-Controlling Interest is presented under the Liabilities section of the Consolidated Balance Sheet using the:

The Net Incomes for Parent and Sub Inc for the year ended July 31, 2012 were $120,000 and $60,000 respectively. Assume that Parent Inc. purchased a controlling interest in Sub Inc. on August 1, 2012 and decides to prepare an Income Statement for the combined entity on the date of acquisition. If Parent acquired 100% of Sub Inc. on that date, what would be the net income reported for the combined entity (for the year ended July 31, 2012)?

When a contingent consideration arising from a business combination is classified as equity, how is any change in its fair value accounted for if the difference arises due to a change in circumstances?

One weakness associated with the Entity Theory is that:

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?

Keen and Lax Inc had the following balance sheets on October 31, 2012: Assuming that Keen Purchases 80% of Lax for a consideration of $240,000, prepare: a) the journal entry that Keen Inc. would make to record the acquisition; b) the elimination entry necessary to produce consolidated balance sheet on the acquisition date.