Exam 7: Consolidated Financial Statements: Subsequent to Date of Business Combination

Under the equity method of accounting, depreciation and amortization of the date-of-business-combination differences between current fair values and carrying amounts of a subsidiary's identifiable net assets is debited in a journal entry to the:

The Investment in Sark Company Common Stock ledger account of Poulter Corporation was as follows for the year ended December 31, 2006: Poulter had acquired 80% of the outstanding common stock of Sark on December 31, 2005 in a business combination. For the fiscal year ended December 31, 2006, Poulter had total revenue (excluding intercompany investment income) of $800,000, and total costs and expenses (including goodwill impairment loss) of $600,000. Poulter declared cash dividends of $60,000 during 2006. a. Reconstruct Poulter Corporation's equity-method journal entries for the operations of Sark Company for 2006. Omit explanations and disregard income taxes. b. Prepare Poulter Corporation's closing entries on December 31, 2006. Omit explanations.

If a parent company uses the equity method of accounting for a partially owned subsidiary and there are no intercompany profits (gains) or losses eliminated for the measurement of consolidated net income, consolidated retained earnings is equal to the balance of the parent company's:

Skeene Company, the 70%-owned subsidiary of Probert Corporation, had a net income of $80,000 and declared dividends of $30,000 during the fiscal year ended February 28, 2006. Fiscal Year 2006 depreciation and amortization of differences between current fair values and carrying amounts of Skeene's identifiable net assets on the date of the business combination was $15,000; and Fiscal Year 2006 impairment of goodwill recognized in the Probert-Skeene business combination was $500. The minority interest in net income of Skeene for Fiscal Year 2006 was:

During the fiscal year ended October 31, 2006, a wholly owned subsidiary of Prescott Company had an adjusted net income of $200,000 and declared dividends of $80,000. In its own operations (exclusive of its equity-method journal entries for the subsidiary), Prescott had total revenue of $800,000 and total costs and expenses of $600,000. In an October 31, 2006, closing entry, Prescott should:

On October 1, 2006, Poon Corporation acquired for cash all the outstanding common stock of Soong Company, which was not liquidated. Consolidated net income for the fiscal year ended December 31, 2006, includes net income of:

The depreciation and amortization of differences between current fair values and carrying amounts of a subsidiary's identifiable net assets is included in consolidated financial statements by means of a working paper elimination.

Dividends declared by a subsidiary subsequent to the date of a business combination are displayed in a consolidated statement of retained earnings.

Refer to the above facts. Assume that, in addition to the revenue and expenses it recognized for Sable Company's operations, Pastel Corporation had net sales of $4,800,000 and total costs and expenses of $3,300,000, but declared no dividends. Prepare closing entries (omit explanations) on March 31, 2006, for Pastel Corporation under the: a. Equity method of accounting b. Cost method of accounting

A wholly owned subsidiary credits the Dividends Payable ledger account when its board of directors declares a dividend.

Under the equity method of accounting, the parent company credits the Intercompany Investment Income ledger account for dividends declared by the subsidiary.

Under the equity method of accounting, a parent company credits the Intercompany Investment Income ledger account for dividends declared by the subsidiary.

Selected ledger account balances (before closing entries) of Pome Corporation on September 30, 2006, one year after the business combination with an 80%-owned subsidiary, were as follows: The carrying amount of Soper's identifiable net assets on September 30, 2005, was $1,200,000, which was the same as their current fair value on that date. Soper had a net income of $80,000 and declared and paid dividends of $20,000 during the fiscal year ended September 30, 2006. Goodwill was unimpaired on September 30, 2006. Prepare an adjusting entry on September 30, 2006, to convert Pome Corporation's accounting for the operations of Soper Company to the equity method of accounting from the cost method of accounting. Disregard income taxes.

Which of the following is not typical of the journal entries prepared by a parent company to account for its subsidiary's operations under the equity method of accounting?

The working paper elimination (in journal entry format) for Parson Corporation and subsidiary on February 28, 2005, (the date of the business combination) was as follows: For the fiscal year ended February 28, 2006, Sexton had a net income of $120,000 and declared a dividend of $40,000 to Parson. Sexton includes straight-line depreciation in operating expenses. Goodwill was unimpaired on February 28, 2006. Prepare a working paper elimination (in journal entry format) for Parson Corporation and subsidiary on February 28, 2006. Omit explanation and disregard income taxes.

Which of the following does not affect the computation of the minority interest in the net assets of a partially owned subsidiary?

The Retained Earnings of Subsidiary ledger account is:

A parent company that uses the cost method of accounting for the operations of a subsidiary prepares no journal entries to reflect the subsidiary's net income or loss for an accounting period.

Goodwill attributable to a business combination involving a partially owned subsidiary is amortized by means of a working paper elimination.

To recognize the impairment of goodwill arising from a business combination involving a partially owned subsidiary: