Question 1

The primary beneficiary of a variable interest entity (VIE)must consolidate the VIE into its financial statements whenever:

Accepted Answer

A) substantially all of the entity's activities are conducted on behalf of an investor who has disproportionally few voting rights. 
B) the voting rights are not proportional to the obligations to absorb the expected losses or receive expected residual returns. 
C) the total equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties. 
D) the holders of the equity investment at risk have the right to receive the residual returns of the legal entity 
A) substantially all of the entity's activities are conducted on behalf of an investor who has disproportionally few voting rights. 
B) the voting rights are not proportional to the obligations to absorb the expected losses or receive expected residual returns. 
C) the total equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties. 
D) the holders of the equity investment at risk have the right to receive the residual returns of the legal entity C

Question 2

A majority-owned subsidiary that is in legal reorganization should normally be accounted for using:

Accepted Answer

A) consolidated financial statements. 
B) the equity method. 
C) the market value method. 
D) the cost method. 
A) consolidated financial statements. 
B) the equity method. 
C) the market value method. 
D) the cost method. D

Question 3

If an entity is not considered a VIE,the determination of consolidation is based on whether:

Accepted Answer

A) the voting rights are proportional to the obligations to absorb expected losses or receive expected residual returns. 
B) the total equity at risk is sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties. 
C) the equity investments or investments in subordinated debt are at risk. 
D) one of the entities in the consolidated group directly or indirectly has a controlling financial interest (usually ownership of a majority voting interest)in the other entities. 
A) the voting rights are proportional to the obligations to absorb expected losses or receive expected residual returns. 
B) the total equity at risk is sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties. 
C) the equity investments or investments in subordinated debt are at risk. 
D) one of the entities in the consolidated group directly or indirectly has a controlling financial interest (usually ownership of a majority voting interest)in the other entities. D

Question 4

Under the acquisition method,indirect costs relating to acquisitions should be:

Accepted Answer

A) included in the investment cost. 
B) expensed as incurred. 
C) deducted from other contributed capital. 
D) none of these. 
A) included in the investment cost. 
B) expensed as incurred. 
C) deducted from other contributed capital. 
D) none of these.

Question 5

On January 1,2016,Prima Company issued 1,500 of its $20 par value common shares with a fair value of $50 per share in exchange for 2,000 outstanding common shares of Swatch Company in a purchase transaction.Registration costs amounted to $1,700 paid in cash.Just prior to the acquisition,the balance sheets of the two companies were as follows:
   Any differences between the book value of equity and the value implied by the purchase price relates to Land.
Required:
A.Prepare the journal entry on Prima's books to record the exchange of stock.
B.Prepare a Computation and Allocation Schedule for the Difference between book value and value implied by the purchase price.
C.Calculate the consolidated balance for each of the following accounts as of December 31,2016:
1.Cash
2.Land
3.Common Stock
4.Other Contributed Capital

Accepted Answer

The answer of On January 1,2016,Prima Company issued 1,500 of...

Question 6

In a business combination accounted for as an acquisition,registration costs related to common stock issued by the parent company are:

Accepted Answer

A) expensed as incurred. 
B) deducted from other contributed capital. 
C) included in the investment cost. 
D) deducted from the investment cost. 
A) expensed as incurred. 
B) deducted from other contributed capital. 
C) included in the investment cost. 
D) deducted from the investment cost.

Question 7

The main evidence of control for purposes of consolidated financial statements involves:

Accepted Answer

A) possessing majority ownership 
B) having decision-making ability that is not shared with others. 
C) being the sole shareholder 
D) having the parent company and the subsidiary participating in the same industry. 
A) possessing majority ownership 
B) having decision-making ability that is not shared with others. 
C) being the sole shareholder 
D) having the parent company and the subsidiary participating in the same industry.

Question 8

IFRS defines control as:

Accepted Answer

A) the direct or indirect ability to determine the direction of management and policies through ownership,contract,or otherwise. 
B) the power to govern the entity's financial and operating policies as to obtain benefits from its activities. 
C) the power to direct the activities that impact economic performance,the obligation to absorb expected losses,and the right to receive expected residual returns. 
D) having a majority of the ownership interests entitled to elect management. 
A) the direct or indirect ability to determine the direction of management and policies through ownership,contract,or otherwise. 
B) the power to govern the entity's financial and operating policies as to obtain benefits from its activities. 
C) the power to direct the activities that impact economic performance,the obligation to absorb expected losses,and the right to receive expected residual returns. 
D) having a majority of the ownership interests entitled to elect management.

Question 9

A useful first step in the consolidating process is to prepare a Computation and Allocation of Difference (CAD)Schedule.Identify the steps involved in preparing the CAD schedule.

Accepted Answer

Preparation of the Computation and Alloc

Question 10

On January 1,2016,Pent Company and Shelter Company had condensed balance sheets as follows:   On January 2,2016 Pent borrowed $180,000 and used the proceeds to purchase 90% of the outstanding common stock of Shelter.This debt is payable in 10 equal annual principal payments,plus interest,starting December 30,2016.Any difference between book value and the value implied by the purchase price relates to land.
On Pent's January 2,2016 consolidated balance sheet,current liabilities should be:

Accepted Answer

A) $150,000. 
B) $138,000. 
C) $120,000. 
D) $90,000. 
A) $150,000. 
B) $138,000. 
C) $120,000. 
D) $90,000.

Question 11

On the consolidated balance sheet,consolidated stockholders' equity is:

Accepted Answer

A) equal to the sum of the parent and subsidiary stockholders' equity. 
B) greater than the parent's stockholders' equity. 
C) less than the parent's stockholders' equity. 
D) equal to the parent's stockholders' equity. 
A) equal to the sum of the parent and subsidiary stockholders' equity. 
B) greater than the parent's stockholders' equity. 
C) less than the parent's stockholders' equity. 
D) equal to the parent's stockholders' equity.

Question 12

On January 1,2016,Pent Company and Shelter Company had condensed balance sheets as follows:   On January 2,2016 Pent borrowed $180,000 and used the proceeds to purchase 90% of the outstanding common stock of Shelter.This debt is payable in 10 equal annual principal payments,plus interest,starting December 30,2016.Any difference between book value and the value implied by the purchase price relates to land.
On Pent's January 2,2016 consolidated balance sheet,noncurrent liabilities should be:

Accepted Answer

A) $330,000. 
B) $312,000. 
C) $180,000. 
D) $162,000. 
A) $330,000. 
B) $312,000. 
C) $180,000. 
D) $162,000.

Question 13

P Company purchased 80% of the outstanding common stock of S Company on January 2,2016,for $380,000.Balance sheets for P Company and S Company immediately after the stock acquisition were as follows:
   S Company owed P Company $16,000 on open account on the date of acquisition.
Required:
Prepare a consolidated balance sheet for P and S Companies on the date of acquisition.Any difference between the value implied by the purchase price of the investment and the book value of net assets acquired relates to subsidiary land.The book values of S Company's other assets and liabilities are equal to their fair values.

Accepted Answer

The answer of P Company purchased 80% of the outstanding...

Question 14

What is the method of presentation required by SFAS 160 of "non-controlling interest" on a consolidated balance sheet?

Accepted Answer

A) As a deduction from goodwill from consolidation. 
B) As a separate item within the long-term liabilities section. 
C) As a part of stockholders' equity. 
D) As a separate item between liabilities and stockholders' equity. 
A) As a deduction from goodwill from consolidation. 
B) As a separate item within the long-term liabilities section. 
C) As a part of stockholders' equity. 
D) As a separate item between liabilities and stockholders' equity.

Question 15

There are several reasons why a company would acquire a subsidiary's voting common stock rather than its net assets.Identify at least two advantages to acquiring a controlling interest in the voting stock of another company rather than its assets.

Accepted Answer

Reasons why a company would acquire a su

Question 16

The Difference between Implied and Book Value account is:

Accepted Answer

A) an asset or liability account reflected on the consolidated balance sheet. 
B) used in allocating the amounts paid for recorded balance sheet accounts that are different than their fair values. 
C) the excess implied value assigned to goodwill. 
D) the unamortized excess that cannot be assigned to any related balance sheet accounts 
A) an asset or liability account reflected on the consolidated balance sheet. 
B) used in allocating the amounts paid for recorded balance sheet accounts that are different than their fair values. 
C) the excess implied value assigned to goodwill. 
D) the unamortized excess that cannot be assigned to any related balance sheet accounts

Question 17

On December 31,2016,Pinta Company purchased 80% of the outstanding common stock of Snead Company for cash.At the time of acquisition,Snead Company's balance sheet was as follows:
   Required:
Prepare the elimination entry(s)required for the preparation of a consolidated balance sheet workpaper on December 31,2016,assuming the purchase price of the stock was $1,670,000.Any difference between the value implied by the purchase price of the investment and the book value of net assets acquired relates to subsidiary land.

Accepted Answer

The answer of On December 31,2016,Pinta Company purchased 80% of...

Question 18

On December 31,2016,Priestly Company purchased a controlling interest in Shelter Company for $1,060,000.The consolidated balance sheet on December 31,2016 reported noncontrolling interest in Shelter Company of $265,000.
On the date of acquisition,the stockholders' equity section of Shelter Company's balance sheet was as follows:
   Required:
A.Compute the noncontrolling interest percentage on December 31,2016.
B.Prepare the investment elimination entry made to prepare a consolidated balance sheet workpaper.Any difference between book value and the value implied by the purchase price relates to subsidiary land.

Accepted Answer

The answer of On December 31,2016,Priestly Company purchased a controlling...

Question 19

On January 1,2016,Pell Company and Sand Company had condensed balance sheets as follows:   On January 2,2016 Pell borrowed $240,000 and used the proceeds to purchase 90% of the outstanding common stock of Sand.This debt is payable in 10 equal annual principal payments,plus interest,starting December 30,2016.Any difference between book value and the value implied by the purchase price relates to land.
On Pell's January 2,2016 consolidated balance sheet,noncurrent liabilities should be:

Accepted Answer

A) $440,000. 
B) $416,000. 
C) $240,000. 
D) $216,000. 
A) $440,000. 
B) $416,000. 
C) $240,000. 
D) $216,000.

Question 20

In which of the following cases would consolidation be inappropriate?

Accepted Answer

A) The subsidiary is in bankruptcy. 
B) Subsidiary's operations are dissimilar from those of the parent. 
C) The parent owns 90 percent of the subsidiary's common stock,but all of the subsidiary's nonvoting preferred stock is held by a single investor. 
D) Subsidiary is foreign. 
A) The subsidiary is in bankruptcy. 
B) Subsidiary's operations are dissimilar from those of the parent. 
C) The parent owns 90 percent of the subsidiary's common stock,but all of the subsidiary's nonvoting preferred stock is held by a single investor. 
D) Subsidiary is foreign.

The primary beneficiary of a variable interest entity (VIE)must consolidate the VIE into its financial statements whenever:

A majority-owned subsidiary that is in legal reorganization should normally be accounted for using:

If an entity is not considered a VIE,the determination of consolidation is based on whether:

Under the acquisition method,indirect costs relating to acquisitions should be:

In a business combination accounted for as an acquisition,registration costs related to common stock issued by the parent company are:

The main evidence of control for purposes of consolidated financial statements involves:

IFRS defines control as:

A useful first step in the consolidating process is to prepare a Computation and Allocation of Difference (CAD)Schedule.Identify the steps involved in preparing the CAD schedule.

On the consolidated balance sheet,consolidated stockholders' equity is:

What is the method of presentation required by SFAS 160 of "non-controlling interest" on a consolidated balance sheet?

There are several reasons why a company would acquire a subsidiary's voting common stock rather than its net assets.Identify at least two advantages to acquiring a controlling interest in the voting stock of another company rather than its assets.

The Difference between Implied and Book Value account is:

In which of the following cases would consolidation be inappropriate?

Introduction to Business Combinations and the Conceptual Framework

Accounting for Business Combinations

Consolidated Financial Statements After Acquisition

Allocation and Depreciation of Differences Between Implied and Book Values

Elimination of Unrealized Profit on Intercompany Sales of Inventory

Elimination of Unrealized Gains or Losses on Intercompany Sales of Property and Equipment

Changes in Ownership Interest

Intercompany Bond Holdings and Miscellaneous Topics Consolidated Financial Statements

Insolvency Liquidation and Reorganization

International Financial Reporting Standards

Accounting for Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Financial Statements of Foreign Affiliates

Reporting for Segments and for Interim Financial Periods

Partnerships: Formation, operation and Ownership Changes

Partnership Liquidation

Introduction to Fund Accounting

Introduction to Accounting for State and Local Governmental Units

Accounting for Nongovernment Nonbusiness Organizations: Colleges and Universities, hospitals, and Other Health Care Organizations

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Exam 3: Consolidated Financial Statements Date of Acquisition

The primary beneficiary of a variable interest entity (VIE)must consolidate the VIE into its financial statements whenever:

A majority-owned subsidiary that is in legal reorganization should normally be accounted for using:

If an entity is not considered a VIE,the determination of consolidation is based on whether:

Under the acquisition method,indirect costs relating to acquisitions should be:

In a business combination accounted for as an acquisition,registration costs related to common stock issued by the parent company are:

The main evidence of control for purposes of consolidated financial statements involves:

IFRS defines control as:

A useful first step in the consolidating process is to prepare a Computation and Allocation of Difference (CAD)Schedule.Identify the steps involved in preparing the CAD schedule.

On the consolidated balance sheet,consolidated stockholders' equity is:

What is the method of presentation required by SFAS 160 of "non-controlling interest" on a consolidated balance sheet?

There are several reasons why a company would acquire a subsidiary's voting common stock rather than its net assets.Identify at least two advantages to acquiring a controlling interest in the voting stock of another company rather than its assets.

The Difference between Implied and Book Value account is:

In which of the following cases would consolidation be inappropriate?

Introduction to Business Combinations and the Conceptual Framework

Accounting for Business Combinations

Consolidated Financial Statements After Acquisition

Allocation and Depreciation of Differences Between Implied and Book Values

Elimination of Unrealized Profit on Intercompany Sales of Inventory

Elimination of Unrealized Gains or Losses on Intercompany Sales of Property and Equipment

Changes in Ownership Interest

Intercompany Bond Holdings and Miscellaneous Topics Consolidated Financial Statements

Insolvency Liquidation and Reorganization

International Financial Reporting Standards

Accounting for Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Financial Statements of Foreign Affiliates

Reporting for Segments and for Interim Financial Periods

Partnerships: Formation, operation and Ownership Changes

Partnership Liquidation

Introduction to Fund Accounting

Introduction to Accounting for State and Local Governmental Units

Accounting for Nongovernment Nonbusiness Organizations: Colleges and Universities, hospitals, and Other Health Care Organizations

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