Question 1

How would you determine the amount of goodwill to be recognized at date of acquisition when there is a non-controlling interest present?

Accepted Answer

The non-controlling interest fair value

Question 2

Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 2010. During 2010, Harbor had revenues of $2,500,000 and expenses of $2,000,000. The amortization of excess cost allocations totaled $60,000 in 2010. The non-controlling interest's share of the earnings of Harbor Corp. is calculated to be

Accepted Answer

A)  $132,000. 
B)  $150,000. 
C)  $168,000. 
D)  $160,000. 
E)  $0. 
A)  $132,000. 
B)  $150,000. 
C)  $168,000. 
D)  $160,000. 
E)  $0.

Question 3

McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, 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:   Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. In consolidation at January 1, 2010, what adjustment is necessary for Hogan's Patent account?

Accepted Answer

A)  $7,000. 
B)  $6,300. 
C)  $11,000. 
D)  $9,900. 
E)  No adjustment is necessary. 
A)  $7,000. 
B)  $6,300. 
C)  $11,000. 
D)  $9,900. 
E)  No adjustment is necessary.

Question 4

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?

Accepted Answer

A)  $350,000. 
B)  $300,000. 
C)  $400,000. 
D)  $370,000. 
E)  $0. 
A)  $350,000. 
B)  $300,000. 
C)  $400,000. 
D)  $370,000. 
E)  $0.

Question 5

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. 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. Demers earns income and pays dividends as follows:   Assume the partial equity method is applied.
Compute Pell's investment in Demers at December 31, 2010.

Accepted Answer

A)  $625,000. 
B)  $574,400. 
C)  $548,000. 
D)  $542,400. 
E)  $532,000. 
A)  $625,000. 
B)  $574,400. 
C)  $548,000. 
D)  $542,400. 
E)  $532,000.

Question 6

McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, 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:   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, 2011, what adjustment is necessary for Hogan's Land account?

Accepted Answer

A)  $7,000 decrease. 
B)  $7,000 increase. 
C)  $6,300 increase. 
D)  $6,300 decrease. 
E)  No adjustment is necessary. 
A)  $7,000 decrease. 
B)  $7,000 increase. 
C)  $6,300 increase. 
D)  $6,300 decrease. 
E)  No adjustment is necessary.

Question 7

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. 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 initial value method is applied.
Compute the non-controlling interest in Demers at December 31, 2011.

Accepted Answer

A)  $126,000. 
B)  $106,000. 
C)  $109,200. 
D)  $149,600. 
E)  $148,200. 
A)  $126,000. 
B)  $106,000. 
C)  $109,200. 
D)  $149,600. 
E)  $148,200.

Question 8

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. 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 initial value method is applied.
Compute the non-controlling interest in the net income of Demers at December 31, 2010.

Accepted Answer

A)  $12,000. 
B)  $10,600. 
C)  $18,600. 
D)  $20,000. 
E)  $14,400. 
A)  $12,000. 
B)  $10,600. 
C)  $18,600. 
D)  $20,000. 
E)  $14,400.

Question 9

How does a parent company account for the sale of a portion of an investment in a subsidiary?

Accepted Answer

If control is maintained after the sale,

Question 10

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. 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 in Demers at December 31, 2011.

Accepted Answer

A)  $577,200. 
B)  $604,000. 
C)  $592,800. 
D)  $632,800. 
E)  $572,000. 
A)  $577,200. 
B)  $604,000. 
C)  $592,800. 
D)  $632,800. 
E)  $572,000.

Question 11

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. 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 the net income of Demers at December 31, 2010.

Accepted Answer

A)  $20,000. 
B)  $12,000. 
C)  $18,600. 
D)  $10,600. 
E)  $14,400. 
A)  $20,000. 
B)  $12,000. 
C)  $18,600. 
D)  $10,600. 
E)  $14,400.

Question 12

McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, 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:   Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. In consolidation at January 1, 2010, what adjustment is necessary for Hogan's Land account?

Accepted Answer

A)  $7,000 increase. 
B)  $7,000 decrease. 
C)  $6,300 increase. 
D)  $6,300 decrease. 
E)  No adjustment is necessary. 
A)  $7,000 increase. 
B)  $7,000 decrease. 
C)  $6,300 increase. 
D)  $6,300 decrease. 
E)  No adjustment is necessary.

Question 13

McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, 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:   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, 2010, what adjustment is necessary for Hogan's Buildings account?

Accepted Answer

A)  $1,620 increase. 
B)  $1,620 decrease. 
C)  $1,800 increase. 
D)  $1,800 decrease. 
E)  No adjustment is necessary. 
A)  $1,620 increase. 
B)  $1,620 decrease. 
C)  $1,800 increase. 
D)  $1,800 decrease. 
E)  No adjustment is necessary.

Question 14

Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2010. For 2010, Kailey reported revenues of $810,000 and expenses of $630,000, all reflected evenly throughout the year. The annual amount of amortization related to this acquisition was $15,000. What is the effect of including Kailey in consolidated net income for 2010?

Accepted Answer

A)  $31,000. 
B)  $33,000. 
C)  $55,000. 
D)  $60,000. 
E)  $39,000. 
A)  $31,000. 
B)  $33,000. 
C)  $55,000. 
D)  $60,000. 
E)  $39,000.

Question 15

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. 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. 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, 2011?

Accepted Answer

A)  $90,400. 
B)  $89,000. 
C)  $50,400. 
D)  $96,000. 
E)  $56,000. 
A)  $90,400. 
B)  $89,000. 
C)  $50,400. 
D)  $96,000. 
E)  $56,000.

Question 16

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?

Accepted Answer

A)  U.S. GAAP requires acquisition-date fair value measurement and IFRS requires the acquiree's identifiable net asset fair value measurement. 
B)  U.S. GAAP and IFRS both require acquisition-date fair value measurement. 
C)  U.S. GAAP and IFRS both require the acquiree's identifiable net asset fair value measurement. 
D)  U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement. 
E)  U.S. GAAP and IFRS both apportion goodwill to the parent only. 
A)  U.S. GAAP requires acquisition-date fair value measurement and IFRS requires the acquiree's identifiable net asset fair value measurement. 
B)  U.S. GAAP and IFRS both require acquisition-date fair value measurement. 
C)  U.S. GAAP and IFRS both require the acquiree's identifiable net asset fair value measurement. 
D)  U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement. 
E)  U.S. GAAP and IFRS both apportion goodwill to the parent only.

Question 17

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?

Accepted Answer

Only postacquisition revenues

Question 18

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.
Using the acquisition method, determine the amount of goodwill associated with Caldwell's purchase of Club.

Accepted Answer

The answer of Caldwell Inc. acquired 65% of Club Corp....

Question 19

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. 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 initial value method is applied.
Compute the non-controlling interest in Demers at December 31, 2012.

Accepted Answer

A)  $107,800. 
B)  $140,000. 
C)  $80,000. 
D)  $50,000. 
E)  $160,800. 
A)  $107,800. 
B)  $140,000. 
C)  $80,000. 
D)  $50,000. 
E)  $160,800.

Question 20

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.

Accepted Answer

(1) F; (2) F; (3) T;

How would you determine the amount of goodwill to be recognized at date of acquisition when there is a non-controlling interest present?

How does a parent company account for the sale of a portion of an investment in a subsidiary?

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?

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?

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidations - Subsequent to the Date of Acquisition

Consolidated Financial Statements - Intercompany Asset Transactions

Intercompany Debt, Consolidated Statement of Cash Flows, and Other Issues

Consolidated Financial Statements - Ownership Patterns and Income Taxes

Segment and Interim Reporting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Worldwide Accounting Diversity and International Accounting Standards

Financial Reporting and the Securities and Exchange Commission

Accounting for Legal Reorganizations and Liquidations

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments

Accounting for State and Local Governments

Accounting for Not-For-Profit Organizations

Accounting for Estates and Trusts

Filters

Exam 4: Consolidated Financial Statements and Outside Ownership

How would you determine the amount of goodwill to be recognized at date of acquisition when there is a non-controlling interest present?

How does a parent company account for the sale of a portion of an investment in a subsidiary?

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?

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?

The Equity Method of Accounting for Investments

Consolidation of Financial Information

Consolidations - Subsequent to the Date of Acquisition

Consolidated Financial Statements - Intercompany Asset Transactions

Intercompany Debt, Consolidated Statement of Cash Flows, and Other Issues

Consolidated Financial Statements - Ownership Patterns and Income Taxes

Segment and Interim Reporting

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Translation of Foreign Currency Financial Statements

Worldwide Accounting Diversity and International Accounting Standards

Financial Reporting and the Securities and Exchange Commission

Accounting for Legal Reorganizations and Liquidations

Partnerships: Formation and Operation

Partnerships: Termination and Liquidation

Accounting for State and Local Governments

Accounting for State and Local Governments

Accounting for Not-For-Profit Organizations

Accounting for Estates and Trusts

Filters