Exam 4: Consolidated Financial Statements and Outside Ownership

One company buys a controlling interest in another company on April 1. How should the preacquisition subsidiary revenues and expenses be handled in the consolidated balances for the year of acquisition?

McLaughlin, Inc. acquires 70 percent of Ellis Corporation on September 1, 2014, and an additional 10 percent on November 1, 2015. Annual amortization of $8,400 attributed to the controlling interest relates to the first acquisition. Ellis reports the following figures for 2015: Revenues \ 500,000 Expenses 350,000 Retained earnings, 1/1/15 3,500,000 Dividends paid 40,000 Common stock 400,000 Without regard for this investment, McLaughlin earns $480,000 in net income ($840,000 revenues less $360,000 expenses; incurred evenly through the year) during 2015. Required: Prepare a schedule of consolidated net income and apportionment to non-controlling and controlling interests for 2015.

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2014 2015 2016 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the PARTIAL EQUITY method is applied. Compute Pell's investment in Demers at December 31, 2015.

McGuire Company acquired 90 percent of Hogan Company on January 1, 2014, for $234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Book Value Fair Value Buildings (10-year life) \ 10,000 \ 8,000 Equipment (4-year life) 14,000 18,000 Land 5,000 12,000 Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. In consolidation at December 31, 2015, what adjustment is necessary for Hogan's Buildings account?

Prevatt, Inc. owns 80% of Franklin Company. During the current year, a portion of the investment in Franklin is sold. Prior to recording the sale, Prevatt adjusts the carrying value of its investment. What is the purpose of the adjustment?

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2014 2015 2016 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the EQUITY METHOD is applied. Compute Pell's investment account balance in Demers at December 31, 2014.

When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000 and a fair value of $100,000. What is the total amount of excess land allocation at the acquisition date?

In comparing U.S. GAAP and international financial reporting standards (IFRS) with regard to a basis for measurement of a non-controlling interest, which of the following is true?

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2014 2015 2016 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the INITIAL VALUE is applied. Compute the non-controlling interest in the net income of Demers at December 31, 2014.

On January 1, 2014, Palk Corp. and Spraz Corp. had condensed balance sheets as follows: Palk Corp. Spraz Corp. Current assets \ 99,000 \ 28,000 Noncurrent assets \ 125,000 \ 56,000 Total assets \ 224,000 \ 84,000 Current liabilities S 42,000 \ 14,000 Long-term debt \ 70,000 \ - Stockholders' equity \ 112,000 \7 0,000 Total liabilities and stockholders' equity \ 224,000 \ 84,000 On January 2, 2014, Palk borrowed the entire $84,000 it needed to acquire 80% of the outstanding common shares of Spraz. The loan was to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2014. The excess consideration transferred over the underlying book value of the acquired net assets was allocated 60% to inventory and 40% to goodwill. What is consolidated stockholders' equity at January 2, 2014?

When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false?

In measuring non-controlling interest at the date of acquisition, which of the following would not be indicative of the value attributed to the non-controlling interest?

When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000 and a fair value of $100,000. What is the amount of excess land allocation attributed to the non-controlling interest at the acquisition date?

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2014 2015 2016 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the EQUITY METHOD is applied. Compute the non-controlling interest in Demers at December 31, 2016.

On January 1, 2014, Jannison Inc. acquired 90% of Techron Co. by paying $477,000 cash. There is no active trading market for Techron stock. Techron Co. reported a Common Stock account balance of $140,000 and Retained Earnings of $280,000 at that date. The fair value of Techron Co. was appraised at $530,000. The total annual amortization was $11,000 as a result of this transaction. The subsidiary earned $98,000 in 2014 and $126,000 in 2015 with dividend payments of $42,000 each year. Without regard for this investment, Jannison had income of $308,000 in 2014 and $364,000 in 2015. Use the economic unit concept to account for this acquisition. What is the non-controlling interest balance as of December 31, 2015?

All of the following statements regarding the sale of subsidiary shares are true except which of the following?

Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2014 when Park's book value was $560,000. The Royce stock was not actively traded. On the date of acquisition, Park had equipment (with a ten-year life) that was undervalued in the financial records by $140,000. One year later, the following selected figures were reported by the two companies. Additionally, no dividends have been paid. Rovee Co. Park Co. Book Book Fair Value Value Value Current assets \ 868,000 \ 420,000 \ 448,000 Equipment 364,000 280,000 400,000 Buildings 574,000 210,000 210,000 Liabilities (546,000) (168,000) (168,000 Revenues (1,260,000) (560,000) Expenses 700,000 420,000 Investment income Not Given What is the consolidated balance of the Equipment account at December 31, 2015?

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2014 2015 2016 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the EQUITY METHOD is applied. Compute Pell's investment account balance in Demers at December 31, 2015.

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2014 2015 2016 Net income \ 100,000 \ 120,000 \ 130,000 Dividends 40,000 50,000 60,000 Assume the INITIAL VALUE is applied. How much does Pell record as Income from Demers for the year ended December 31, 2015?

When a parent uses the partial equity method throughout the year to account for its investment in an acquired subsidiary, which of the following statements is false before making adjustments on the consolidated worksheet?