Exam 4: Consolidated Financial Statements and Outside Ownership

On January 1, 2013, Vacker Co. acquired 70% of Carper Inc. by paying $650,000. This included a $20,000 control premium. Carper reported common stock on that date of $420,000 with retained earnings of $252,000. A building was undervalued in the company's financial records by $28,000. This building had a ten-year remaining life. Copyrights of $80,000 were to be recognized and amortized over 20 years. Carper earned income and paid cash dividends as follows: On December 31, 2015, Vacker owed $30,800 to Carper. There have been no changes in Carper's common stock account since the acquisition. Required: If the equity method had been applied by Vacker for this acquisition, what were the consolidation entries needed as of December 31, 2015?

Caldwell Inc. acquired 65% of Club Corp. for $2,600,000. Club owned a building and equipment with ten-year useful lives. The book value of these assets was $830,000, and the fair value was $950,000. For Club's other assets and liabilities, book value was equal to fair value. The total fair value of Club's net assets was $3,500,000. Determine the amount of the non-controlling interest as of the date of the acquisition.

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. What is the non-controlling interest's share of the subsidiary's net income for the year ended December 31, 2015 and what is the ending balance of the non-controlling interest in the subsidiary 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: Assume the EQUITY METHOD is applied. Compute Pell's investment account balance in Demers at December 31, 2015.

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. What is the consolidated balance of the Equipment account at December 31, 2015?

Where may a non-controlling interest be presented in a consolidated balance sheet?

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?

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: Assume the PARTIAL EQUITY method is applied. Compute the non-controlling interest in the net income of Demers at 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?

Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assets was $1,850,000, and the book value was $1,500,000. The non-controlling interest shares of Float Corp. are not actively traded. What is the dollar amount of non-controlling interest that should appear in a consolidated balance sheet prepared at the date of acquisition?

When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true?

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

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: Assume the PARTIAL EQUITY method is applied. How much does Pell record as income from Demers for the year ended December 31, 2015?

On January 1, 2014, Glenville Co. acquired an 80% interest in Acron Corp. for $500,000. There is no active trading market for Acron's stock. The fair value of Acron's net assets was $600,000 and Glenville accounts for its interest using the acquisition method. Determine the value assigned to the non-controlling interest as of the date of the acquisition.

When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, which of the following statements is true in the presentation of consolidated financial statements?

Select True (T) or False (F) for each of the following statements: _____ 1. A parent will recognize a gain or loss if it sells a portion of its investment in a subsidiary and maintains control after the sale. _____ 2. A parent sells a portion of its investment in a subsidiary and no longer maintains control. This sale of shares represents a remeasurement event for the investee. _____ 3. International financial reporting standards (IFRS) allow an option to value the non-controlling interest with goodwill or to value the non-controlling interest without goodwill. _____ 4. Consolidated net income represents the combined net income of the parent and subsidiary after subtracting the non-controlling interest in the net income of the subsidiary. _____ 5. The total acquisition-date fair value of an acquired firm is the sum of the fair value of the controlling interest and the fair value of the non-controlling interest. _____ 6. When control of a subsidiary is acquired on a date other than the first day of a fiscal year, excess amortization expenses are pro-rated to include only the post-acquisition period. _____ 7. For a mid-year acquisition following an equity method investment of the same company, the consolidated income statement will report consolidated revenues and expenses for the entire year. _____ 8. In a step acquisition where the parent previously held a non-controlling interest in the acquired firm, the parent remeasures the prior interest to fair value. _____ 9. When a parent has control over a subsidiary with less than 100 percent ownership, and thereafter increases its ownership, the parent remeasures the prior interest to fair value.

In a step acquisition, which of the following statements is false?

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: Assume the EQUITY METHOD is applied. Compute Pell's income from Demers for the year ended December 31, 2016.

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: Assume the EQUITY METHOD is applied. Compute the non-controlling interest in Demers at December 31, 2016.

For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except: