Exam 3: Consolidations - Subsequent to the Date of Acquisition

When a company applies the partial equity method in accounting for its investment in a subsidiary and initial value,book values and fair values of net assets are all equal,what consolidation worksheet entry would be made?

For an acquisition when the subsidiary maintains its incorporation,under the partial equity method,what adjustments are made to the balance of the investment account?

REFERENCE: Ref.03_07 Following are selected accounts for Green Corporation and Vega Company as of December 31,2010.Several of Green's accounts have been omitted. Green obtained 100% of Vega on January 1,2006,by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share.On January 1,2006,Vega's land was undervalued by $40,000,its buildings were overvalued by $30,000,and equipment was undervalued by $80,000.The buildings have a 20-year life and the equipment has a 10-year life.$50,000 was attributed to an unrecorded trademark with a 16-year remaining life.There was no goodwill associated with this investment. -Which of the following will result in the recognition of an impairment loss on goodwill?

For each of the following situations,select the best answer that applies to consolidating financial information subsequent to the acquisition date: (A)Acquisition method,but not purchase method. (B)Acquisition method,but not pooling-of-interests method. (C)Both pooling-of-interest method and acquisition method. (D)Initial value method. (E)Partial equity method. (F)Equity method. (G)Initial value method and partial equity method but not equity method. (H)Partial equity method and equity method but not initial value method. (I)Initial value method,partial equity method,and equity method. _____1.Basic objective is to combine asset,liability,revenue,expense,and equity accounts of a parent and its subsidiaries. _____2.Method(s)available to the parent for internal record-keeping. _____3.Never results in goodwill. _____4.Easiest internal record-keeping method to apply. _____5.Income of the subsidiary is recorded by the parent when earned. _____6.Designed to create a parallel between the parent's investment accounts and changes in the underlying equity of the acquired company. _____7.For years subsequent to acquisition,requires the *C entry. _____8.Uses the cash basis for income recognition. _____9.Investment account remains at initially recorded amount. _____10.Dividends received by the parent from the subsidiary reduce the parent's investment account. _____11.Requires a schedule to allocate the consideration transferred in the original combination transaction. _____12.Often referred to in accounting as a single-line consolidation. _____13.Increases the investment account for subsidiary earnings,but does not decrease the subsidiary account for equity adjustments such as amortizations.

According to SFAS 142,which of the following statements is true?

Which one of the following varies between the equity,initial value,and partial equity methods of accounting for an investment?

Melvin Company applies the equity method to account for its investment in Lang Company.Lang reports income in excess of an extraordinary loss in 2009.Melvin acknowledges that it must separately disclose the extraordinary loss in consolidated financial statements.What entry would be made by Melvin Company to record Lang's results? Selections B and C are the same.Change the credit for C to Retained Earnings Christina -I agree with both comments here but we can't edit the picture. The credit for D should be Investment in Lang

REFERENCE: Ref.03_17 On 4/1/09,Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash.On the date of acquisition,DotDot's net book value was $900,000.DotDot's assets included land that was undervalued by $300,000,a building that was undervalued by $400,000,and equipment that was overvalued by $50,000.The building had a remaining useful life of 8 years and the equipment had a remaining useful life of 4 years.Any excess fair value over consideration transferred is allocated to an undervalued patent and is amortized over 5 years. -Determine the amortization expense related to the consolidation at the year-end date of 12/31/19.

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?

REFERENCE: Ref.03_15 Utah Inc.obtained all of the outstanding common stock of Trimmer Corp.on January 1,2009.At that date,Trimmer owned only three assets and had no liabilities: SHAPE \* MERGEFORMAT -If Utah paid $300,000 in cash for Trimmer,what allocation should have been assigned to the subsidiary's Building account and its Equipment account in a December 31,2011 consolidation?

When a company applies the initial value method in accounting for its investment in a subsidiary and the subsidiary reports income less than dividends paid,what entry would be made for a consolidated worksheet?

REFERENCE: Ref.03_07 Following are selected accounts for Green Corporation and Vega Company as of December 31,2010.Several of Green's accounts have been omitted. Green obtained 100% of Vega on January 1,2006,by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share.On January 1,2006,Vega's land was undervalued by $40,000,its buildings were overvalued by $30,000,and equipment was undervalued by $80,000.The buildings have a 20-year life and the equipment has a 10-year life.$50,000 was attributed to an unrecorded trademark with a 16-year remaining life.There was no goodwill associated with this investment. -Compute the December 31,2010,consolidated total expenses.

REFERENCE: Ref.03_12 Watkins,Inc.acquires all of the outstanding stock of Glen Corporation on January 1,2009.At that date,Glen owns only three assets and has no liabilities: -If the transaction instead occurred on January 1,2008 under a SFAS 141 purchase combination,and Watkins pays $300,000 in cash for Glen,at what amount would the subsidiary's Equipment be represented in a December 31,2011 consolidation?

REFERENCE: Ref.03_09 Harrison,Inc.acquires 100% of the voting stock of Rhine Company on January 1,2009 for $400,000 cash.A contingent payment of $16,500 will be paid on April 15,2010 if Rhine generates cash flows from operations of $27,000 or more in the next year.Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year,and uses an interest rate of 5% to incorporate the time value of money.The fair value of $16,500 at 5%,using a probability weighted approach,is $3,142. -If the combination transaction had taken place on January 1,2008,under SFAS 141,Business Combinations,what would Harrison have recorded as the acquisition price on that date?

Which of the following statements is false regarding push-down accounting?

When consolidating a subsidiary under the equity method,which of the following statements is true?

REFERENCE: Ref.03_15 Utah Inc.obtained all of the outstanding common stock of Trimmer Corp.on January 1,2009.At that date,Trimmer owned only three assets and had no liabilities: SHAPE \* MERGEFORMAT -Matthews Co.obtained all of the common stock of Jackson Co.on January 1,2009.As of that date,Jackson had the following trial balance: SHAPE \* MERGEFORMAT During 2009,Jackson reported net income of $96,000 while paying dividends of $12,000.During 2010,Jackson reported net income of $132,000 while paying dividends of $36,000. Assume that Matthews Co.acquired the common stock of Jackson Co.for $588,000 in cash.As of January 1,2009,Jackson's land had a fair value of $102,000,its buildings were valued at $188,000,and its equipment was appraised at $216,000.Any excess of consideration transferred over fair value of assets and liabilities acquired is due to an unamortized patent to be amortized over 10 years. Matthews decided to use the equity method for this investment. Required: (A. )Prepare consolidation worksheet entries for December 31,2009. (B. )Prepare consolidation worksheet entries for December 31,2010.

REFERENCE: Ref.03_05 Perry Company obtains 100% of the stock of Hurley Corporation on January 1,2009,for $3,800 cash.As of that date Hurley has the following trial balance; SHAPE \* MERGEFORMAT Any excess of consideration transferred over fair value is considered goodwill with an indefinite life.FIFO inventory valuation method is used. -Compute the amount of Hurley's buildings that would be reported on a December 31,2010,consolidated balance sheet.

REFERENCE: Ref.03_16 Pritchett Company recently acquired three businesses,recognizing goodwill in each acquisition.Destin has allocated its acquired goodwill to its three reporting units: Apple,Banana,and Carrot.Pritchett provides the following information in performing the 2009 annual review for impairment: -Which of Pritchett's reporting units require both steps to test for goodwill impairment?

Under the partial equity method of accounting for an investment,