Deck 5: Consolidation of Less-Than-Wholly-Owned Subsidiaries Acquired at More Than Book Value

Question 1

The following information applies to Questions 7-13
On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company's common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Sea-Gull's net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.
Based on the preceding information,what amount of total liabilities will be reported in the consolidated balance sheet prepared immediately after the business combination?

A) $395,000
B) $280,000
C) $275,000
D) $195,000

Answer 1

C

Question 2

The following information applies to Questions 14 - 20
On January 1, 20X6, Interstate Corporation acquired 70 percent of Catapult Company's common stock for $210,000 cash. The fair value of the noncontrolling interest at that date was determined to be $90,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Catapult's assets and liabilities approximated fair value except for inventory, which had a fair value of $30,000, and land, which had a fair value of $95,000.
Based on the preceding information,what amount will be reported as noncontrolling interest in the consolidated balance sheet prepared immediately after the business combination?

A) $0
B) $81,000
C) $90,000
D) $96,000

Answer 2

C

Question 3

The following information applies to Questions 14 - 20
On January 1, 20X6, Interstate Corporation acquired 70 percent of Catapult Company's common stock for $210,000 cash. The fair value of the noncontrolling interest at that date was determined to be $90,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Catapult's assets and liabilities approximated fair value except for inventory, which had a fair value of $30,000, and land, which had a fair value of $95,000.
Based on the preceding information,what amount of total liabilities will be reported in the consolidated balance sheet prepared immediately after the business combination?

A) $190,000
B) $230,000
C) $240,000
D) $440,000

Answer 3

C

Question 4

The following information applies to Questions 7-13
On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company's common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Sea-Gull's net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.
Based on the preceding information,what amount will be reported as total stockholders' equity in the consolidated balance sheet prepared immediately after the business combination?

A) $445,000
B) $205,000
C) $565,000
D) $550,000

Question 5

The following information applies to Questions 14 - 20
On January 1, 20X6, Interstate Corporation acquired 70 percent of Catapult Company's common stock for $210,000 cash. The fair value of the noncontrolling interest at that date was determined to be $90,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Catapult's assets and liabilities approximated fair value except for inventory, which had a fair value of $30,000, and land, which had a fair value of $95,000.
Based on the preceding information,what amount of total inventory will be reported in the consolidated balance sheet prepared immediately after the business combination?

A) $20,000
B) $30,000
C) $50,000
D) $60,000

Question 6

The following information applies to Questions 14 - 20
On January 1, 20X6, Interstate Corporation acquired 70 percent of Catapult Company's common stock for $210,000 cash. The fair value of the noncontrolling interest at that date was determined to be $90,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Catapult's assets and liabilities approximated fair value except for inventory, which had a fair value of $30,000, and land, which had a fair value of $95,000.
Based on the preceding information,what amount will be reported as total stockholders' equity in the consolidated balance sheet prepared immediately after the business combination?

A) $360,000
B) $590,000
C) $770,000
D) $860,000

Question 7

Based on the preceding information,what amount of land will be included in the consolidated balance sheet immediately following the acquisition?

A) $0
B) $10,000
C) $90,000
D) $100,000

Question 8

The following information applies to Questions 14 - 20
On January 1, 20X6, Interstate Corporation acquired 70 percent of Catapult Company's common stock for $210,000 cash. The fair value of the noncontrolling interest at that date was determined to be $90,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Catapult's assets and liabilities approximated fair value except for inventory, which had a fair value of $30,000, and land, which had a fair value of $95,000.
Based on the preceding information,what amount of goodwill will be reported in the consolidated balance sheet prepared immediately after the business combination?

A) $0
B) $5,000
C) $25,000
D) $30,000

Question 9

Based on the preceding information,what amount of buildings and equipment (net)will be included in the consolidated balance sheet immediately following the acquisition?

A) $0
B) $50,000
C) $250,000
D) $300,000

Question 10

The following information applies to Questions 7-13
On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company's common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Sea-Gull's net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.
Based on the preceding information,what amount of consolidated retained earnings will be reported immediately after the business combination?

A) $205,000
B) $120,000
C) $325,000
D) $310,000

Question 11

Based on the preceding information,what amount will be reported as investment in Silver Corporation stock in the consolidated balance sheet immediately following the acquisition?

A) $0
B) $210,000
C) $300,000
D) $400,000

Question 12

The following information applies to Questions 14 - 20
On January 1, 20X6, Interstate Corporation acquired 70 percent of Catapult Company's common stock for $210,000 cash. The fair value of the noncontrolling interest at that date was determined to be $90,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Catapult's assets and liabilities approximated fair value except for inventory, which had a fair value of $30,000, and land, which had a fair value of $95,000.
Based on the preceding information,what amount of consolidated retained earnings will be reported in the consolidated balance sheet prepared immediately after the business combination?

A) $180,000
B) $200,000
C) $300,000
D) $380,000

Question 13

The following information applies to Questions 7-13
On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company's common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Sea-Gull's net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.
Based on the preceding information,what amount of total inventory will be reported in the consolidated balance sheet prepared immediately after the business combination?

A) $130,000
B) $135,000
C) $90,000
D) $45,000

Question 14

The following information applies to Questions 7-13
On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company's common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Sea-Gull's net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.
Based on the preceding information,what amount of goodwill will be reported in the consolidated balance sheet prepared immediately after the business combination?

A) $0
B) $40,000
C) $20,000
D) $15,000

Question 15

Based on the preceding information,what amount of goodwill will be reported in the consolidated balance sheet immediately following the acquisition?

A) $0
B) $120,000
C) $65,000
D) $20,000

Question 16

Based on the preceding information,what amount of inventory will be included in the consolidated balance sheet immediately following the acquisition?

A) $0
B) $65,000
C) $70,000
D) $60,000

Question 17

The following information applies to Questions 7-13
On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company's common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Sea-Gull's net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.
Based on the preceding information,what amount of total assets will be reported in the consolidated balance sheet prepared immediately after the business combination?

A) $720,000
B) $840,000
C) $825,000
D) $865,000

Question 18

Based on the preceding information,what amount will be reported as noncontrolling interest in the consolidated balance sheet immediately following the acquisition?

A) $0
B) $70,000
C) $83,750
D) $100,000

Question 19

The following information applies to Questions 14 - 20
On January 1, 20X6, Interstate Corporation acquired 70 percent of Catapult Company's common stock for $210,000 cash. The fair value of the noncontrolling interest at that date was determined to be $90,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Catapult's assets and liabilities approximated fair value except for inventory, which had a fair value of $30,000, and land, which had a fair value of $95,000.
Based on the preceding information,what amount of total assets will be reported in the consolidated balance sheet prepared immediately after the business combination?

A) $800,000
B) $830,000
C) $1,010,000
D) $1,040,000

Question 20

The following information applies to Questions 7-13
On January 1, 20X9, Gulliver Corporation acquired 80 percent of Sea-Gull Company's common stock for $160,000 cash. The fair value of the noncontrolling interest at that date was determined to be $40,000. Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
At the date of the business combination, the book values of Sea-Gull's net assets and liabilities approximated fair value except for inventory, which had a fair value of $45,000, and land, which had a fair value of $60,000.
Based on the preceding information,what amount will be reported as noncontrolling interest in the consolidated balance sheet prepared immediately after the business combination?

A) $0
B) $15,000
C) $40,000
D) $46,000

Question 21

The following information applies to Questions 21-26
On December 31, 20X8, X Company acquired controlling ownership of Y Company. A consolidated balance sheet was prepared immediately. Partial balance sheet data for the two companies and the consolidated entity at that date follow:
During 20X8, X Company provided consulting services to Y Company and has not yet paid for them. There were no other receivables or payables between the companies at December 31, 20X8.

Based on the information given,what was the fair value of Y Company as a whole at the date of acquisition?

A) $155,000
B) $110,000
C) $115,000
D) $135,000

Question 22

The following information applies to Questions 37 - 38
On December 31, 20X5, Paris Corporation acquired 60 percent of Sanlo Company's common stock for $180,000. At that date, the fair value of the noncontrolling interest was $120,000. Of the $45,000 differential, $5,000 related to the increased value of Sanlo's inventory, $15,000 related to the increased value of its land, and $10,000 related to the increased value of its equipment that had a remaining life of five years from the date of combination. Sanlo sold all inventory it held at the end of 20X5 during 20X6. The land to which the differential related was also sold during 20X6 for a large gain. In 20X6, Sanlo reported net income of $40,000 but paid no dividends. Paris accounts for its investment in Sanlo using the equity method.
Based on the preceding information,what amount of differential would Paris amortize during 20X6 in its equity method journal entries?

A) $13,200
B) $15,000
C) $22,000
D) $30,000

Question 23

The following information applies to Questions 29-31
On January 1, 20X6, Climber Corporation acquired 90 percent of Wisden Corporation for $180,000 cash. Wisden reported net income of $30,000 and dividends of $10,000 for 20X6, 20X7, and 20X8. On January 1, 20X6, Wisden reported common stock outstanding of $100,000 and retained earnings of $60,000, and the fair value of the noncontrolling interest was $20,000. It held land with a book value of $30,000 and a market value of $35,000 and equipment with a book value of $50,000 and a market value of $60,000 at the date of combination. The remainder of the differential at acquisition was attributable to an increase in the value of patents, which had a remaining useful life of five years. All depreciable assets held by Wisden at the date of acquisition had a remaining economic life of five years. Climber uses the equity method in accounting for its investment in Wisden.
Based on the preceding information,what balance would Climber report as its investment in Wisden at January 1,20X9?

A) $251,100
B) $224,100
C) $215,100
D) $234,000

Question 24

The following information applies to Questions 35-26
On December 31, 20X8, Melkor Corporation acquired 80 percent of Sydney Company's common stock for $160,000. At that date, the fair value of the noncontrolling interest was $40,000. Of the $75,000 differential, $10,000 related to the increased value of Sydney's inventory, $20,000 related to the increased value of its land, and $25,000 related to the increased value of its equipment that had a remaining life of 10 years from the date of combination. Sydney sold all inventory it held at the end of 20X8 during 20X9. The land to which the differential related was also sold during 20X9 for a large gain. At the date of combination, Sydney reported retained earnings of $75,000 and common stock outstanding of $50,000. In 20X9, Sydney reported net income of $60,000, but paid no dividends. Melkor accounts for its investment in Sydney using the equity method.
Based on the preceding information,the amount of goodwill reported in the consolidated financial statements prepared immediately after the combination is:

A) $0
B) $32,500
C) $26,000
D) $20,000

Question 25

The following information applies to Questions 32 - 34
On January 1, 20X2, Ephraim Corporation acquired 80 percent of Lilac Corporation for $200,000 cash. Lilac reported net income of $25,000 each year and dividends of $5,000 each year for 20X2, 20X3, and 20X4. On January 1, 20X2, Lilac reported common stock outstanding of $160,000 and retained earnings of $40,000, and the fair value of the noncontrolling interest was $50,000. It held land with a book value of $90,000 and a market value of $100,000, and equipment with a book value of $40,000 and a market value of $48,000 at the date of combination. The remainder of the differential at acquisition was attributable to an increase in the value of patents, which had a remaining useful life of eight years. All depreciable assets held by Lilac at the date of acquisition had a remaining economic life of eight years. Ephraim uses the equity method in accounting for its investment in Lilac.
Based on the preceding information,what balance would Ephraim report as its investment in Lilac at January 1,20X4?

A) $200,000
B) $224,000
C) $232,000
D) $240,000

Question 26

The following information applies to Questions 39-40
On January 1, 20X8, Ramon Corporation acquired 75 percent of Tester Company's voting common stock for $300,000. At the time of the combination, Tester reported common stock outstanding of $200,000 and retained earnings of $150,000, and the fair value of the noncontrolling interest was $100,000. The book value of Tester's net assets approximated market value except for patents that had a market value of $50,000 more than their book value. The patents had a remaining economic life of ten years at the date of the business combination. Tester reported net income of $40,000 and paid dividends of $10,000 during 20X8.
Based on the preceding information,what balance will Ramon report as its investment in Tester at December 31,20X8,assuming Ramon uses the equity method in accounting for its investment?

A) $318,750
B) $317,500
C) $330,000
D) $326,250

Question 27

The following information applies to Questions 29-31
On January 1, 20X6, Climber Corporation acquired 90 percent of Wisden Corporation for $180,000 cash. Wisden reported net income of $30,000 and dividends of $10,000 for 20X6, 20X7, and 20X8. On January 1, 20X6, Wisden reported common stock outstanding of $100,000 and retained earnings of $60,000, and the fair value of the noncontrolling interest was $20,000. It held land with a book value of $30,000 and a market value of $35,000 and equipment with a book value of $50,000 and a market value of $60,000 at the date of combination. The remainder of the differential at acquisition was attributable to an increase in the value of patents, which had a remaining useful life of five years. All depreciable assets held by Wisden at the date of acquisition had a remaining economic life of five years. Climber uses the equity method in accounting for its investment in Wisden.
Based on the preceding information,the increase in the fair value of patents held by Wisden is:

A) $20,000
B) $25,000
C) $15,000
D) $5,000

Question 28

The following information applies to Questions 21-26
On December 31, 20X8, X Company acquired controlling ownership of Y Company. A consolidated balance sheet was prepared immediately. Partial balance sheet data for the two companies and the consolidated entity at that date follow:
During 20X8, X Company provided consulting services to Y Company and has not yet paid for them. There were no other receivables or payables between the companies at December 31, 20X8.

Based on the information given,what balance in accounts receivable did Y Company report at December 31,20X8?

A) $28,000
B) $48,000
C) $40,000
D) $38,000

Question 29

The following information applies to Questions 37 - 38
On December 31, 20X5, Paris Corporation acquired 60 percent of Sanlo Company's common stock for $180,000. At that date, the fair value of the noncontrolling interest was $120,000. Of the $45,000 differential, $5,000 related to the increased value of Sanlo's inventory, $15,000 related to the increased value of its land, and $10,000 related to the increased value of its equipment that had a remaining life of five years from the date of combination. Sanlo sold all inventory it held at the end of 20X5 during 20X6. The land to which the differential related was also sold during 20X6 for a large gain. In 20X6, Sanlo reported net income of $40,000 but paid no dividends. Paris accounts for its investment in Sanlo using the equity method.
Based on the preceding information,the amount of goodwill reported in the consolidated financial statements prepared immediately after the combination is

A) $9,000
B) $15,000
C) $27,000
D) $45,000

Question 30

The following information applies to Questions 21-26
On December 31, 20X8, X Company acquired controlling ownership of Y Company. A consolidated balance sheet was prepared immediately. Partial balance sheet data for the two companies and the consolidated entity at that date follow:
During 20X8, X Company provided consulting services to Y Company and has not yet paid for them. There were no other receivables or payables between the companies at December 31, 20X8.

Based on the information given,what percentage of Y Company's shares were acquired by X Company?

A) 100 percent
B) 60 percent
C) 80 percent
D) 75 percent

Question 31

The following information applies to Questions 39-40
On January 1, 20X8, Ramon Corporation acquired 75 percent of Tester Company's voting common stock for $300,000. At the time of the combination, Tester reported common stock outstanding of $200,000 and retained earnings of $150,000, and the fair value of the noncontrolling interest was $100,000. The book value of Tester's net assets approximated market value except for patents that had a market value of $50,000 more than their book value. The patents had a remaining economic life of ten years at the date of the business combination. Tester reported net income of $40,000 and paid dividends of $10,000 during 20X8.
Based on the preceding information,which of the following is an consolidating entry needed to prepare a full set of consolidated financial statements at December 31,20X8:

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question 32

The following information applies to Questions 21-26
On December 31, 20X8, X Company acquired controlling ownership of Y Company. A consolidated balance sheet was prepared immediately. Partial balance sheet data for the two companies and the consolidated entity at that date follow:
During 20X8, X Company provided consulting services to Y Company and has not yet paid for them. There were no other receivables or payables between the companies at December 31, 20X8.

Based on the information given,what amount will be reported as total controlling interest in the consolidated balance sheet?

A) $254,000
B) $285,000
C) $364,000
D) $395,000

Question 33

The following information applies to Questions 21-26
On December 31, 20X8, X Company acquired controlling ownership of Y Company. A consolidated balance sheet was prepared immediately. Partial balance sheet data for the two companies and the consolidated entity at that date follow:
During 20X8, X Company provided consulting services to Y Company and has not yet paid for them. There were no other receivables or payables between the companies at December 31, 20X8.

Rohan Corporation holds assets with a fair value of $150,000 and a book value of $125,000 and liabilities with a book value and fair value of $50,000.What balance will be assigned to the noncontrolling interest in the consolidated balance sheet if Helms Company pays $90,000 to acquire 75 percent ownership in Rohan and goodwill of $20,000 is reported?

A) $50,000
B) $30,000
C) $40,000
D) $20,000

Question 34

The following information applies to Questions 32 - 34
On January 1, 20X2, Ephraim Corporation acquired 80 percent of Lilac Corporation for $200,000 cash. Lilac reported net income of $25,000 each year and dividends of $5,000 each year for 20X2, 20X3, and 20X4. On January 1, 20X2, Lilac reported common stock outstanding of $160,000 and retained earnings of $40,000, and the fair value of the noncontrolling interest was $50,000. It held land with a book value of $90,000 and a market value of $100,000, and equipment with a book value of $40,000 and a market value of $48,000 at the date of combination. The remainder of the differential at acquisition was attributable to an increase in the value of patents, which had a remaining useful life of eight years. All depreciable assets held by Lilac at the date of acquisition had a remaining economic life of eight years. Ephraim uses the equity method in accounting for its investment in Lilac.
Based on the preceding information,the increase in the fair value of patents held by Lilac is

A) $10,000
B) $18,000
C) $32,000
D) $50,000

Question 35

The following information applies to Questions 21-26
On December 31, 20X8, X Company acquired controlling ownership of Y Company. A consolidated balance sheet was prepared immediately. Partial balance sheet data for the two companies and the consolidated entity at that date follow:
During 20X8, X Company provided consulting services to Y Company and has not yet paid for them. There were no other receivables or payables between the companies at December 31, 20X8.

Based on the information given,what is the amount of unpaid consulting services at December 31,20X8,on work done by X Company for Y Company?

A) $0
B) $10,000
C) $5,000
D) $15,000

Question 36

The following information applies to Questions 21-26
On December 31, 20X8, X Company acquired controlling ownership of Y Company. A consolidated balance sheet was prepared immediately. Partial balance sheet data for the two companies and the consolidated entity at that date follow:
During 20X8, X Company provided consulting services to Y Company and has not yet paid for them. There were no other receivables or payables between the companies at December 31, 20X8.

Based on the information given,X Company and Y Company reported wages payable of

A) $50,000 and $28,000 respectively.
B) $60,000 and $32,000 respectively.
C) $40,000 and $35,000 respectively.
D) $28,000 and $60,000 respectively.

Question 37

The following information applies to Questions 29-31
On January 1, 20X6, Climber Corporation acquired 90 percent of Wisden Corporation for $180,000 cash. Wisden reported net income of $30,000 and dividends of $10,000 for 20X6, 20X7, and 20X8. On January 1, 20X6, Wisden reported common stock outstanding of $100,000 and retained earnings of $60,000, and the fair value of the noncontrolling interest was $20,000. It held land with a book value of $30,000 and a market value of $35,000 and equipment with a book value of $50,000 and a market value of $60,000 at the date of combination. The remainder of the differential at acquisition was attributable to an increase in the value of patents, which had a remaining useful life of five years. All depreciable assets held by Wisden at the date of acquisition had a remaining economic life of five years. Climber uses the equity method in accounting for its investment in Wisden.
Based on the preceding information,what balance would Climber report as its investment in Wisden at January 1,20X8?

A) $230,400
B) $180,000
C) $234,000
D) $203,400

Question 38

When a parent owns less than 100% of a subsidiary,the noncontrolling interest shareholders are allocated their ownership percentage of income or net assets in all of the following consolidating entries except for:

A) The basic investment account consolidation entry
B) The excess value (differential) reclassification entry
C) The optional accumulated depreciation consolidation entry
D) The amortized excess value reclassification entry

Question 39

The following information applies to Questions 35-26
On December 31, 20X8, Melkor Corporation acquired 80 percent of Sydney Company's common stock for $160,000. At that date, the fair value of the noncontrolling interest was $40,000. Of the $75,000 differential, $10,000 related to the increased value of Sydney's inventory, $20,000 related to the increased value of its land, and $25,000 related to the increased value of its equipment that had a remaining life of 10 years from the date of combination. Sydney sold all inventory it held at the end of 20X8 during 20X9. The land to which the differential related was also sold during 20X9 for a large gain. At the date of combination, Sydney reported retained earnings of $75,000 and common stock outstanding of $50,000. In 20X9, Sydney reported net income of $60,000, but paid no dividends. Melkor accounts for its investment in Sydney using the equity method.
Based on the preceding information,what is the amount of write-off of differential associated with this acquisition recorded by Melkor during 20X9?

A) $0
B) $32,500
C) $26,000
D) $20,000

Question 40

The following information applies to Questions 32 - 34
On January 1, 20X2, Ephraim Corporation acquired 80 percent of Lilac Corporation for $200,000 cash. Lilac reported net income of $25,000 each year and dividends of $5,000 each year for 20X2, 20X3, and 20X4. On January 1, 20X2, Lilac reported common stock outstanding of $160,000 and retained earnings of $40,000, and the fair value of the noncontrolling interest was $50,000. It held land with a book value of $90,000 and a market value of $100,000, and equipment with a book value of $40,000 and a market value of $48,000 at the date of combination. The remainder of the differential at acquisition was attributable to an increase in the value of patents, which had a remaining useful life of eight years. All depreciable assets held by Lilac at the date of acquisition had a remaining economic life of eight years. Ephraim uses the equity method in accounting for its investment in Lilac.
Based on the preceding information,what balance would Ephraim report as its investment in Lilac at January 1,20X5?

A) $236,000
B) $248,000
C) $260,000
D) $300,000

Question 41

On January 1,20X8,Vector Company acquired 80 percent of Scalar Company's ownership on for $120,000 cash.At that date,the fair value of the noncontrolling interest was $30,000.The book value of Scalar's net assets at acquisition was $125,000.The book values and fair values of Scalar's assets and liabilities were equal,except for buildings and equipment,which were worth $15,000 more than book value.Buildings and equipment are depreciated on a 10-year basis.Although goodwill is not amortized,the management of Vector concluded at December 31,20X8,that goodwill from its acquisition of Scalar shares had been impaired and the correct carrying amount was $5,000.Goodwill and goodwill impairment were assigned proportionately to the controlling and noncontrolling shareholders.No additional impairment occurred in 20X9.
Trial balance data for Vector and Scalar on December 31,20X9,are as follows:

Required:
1)Provide all consolidating entries needed to prepare a three-part consolidation worksheet as of December 31,20X9.
2)Prepare a three-part consolidation worksheet for 20X9 in good form.
Problem 57 (continued):

Question 42

The following information applies to Questions 41-45
On January 1, 20X6, Polka Co. (Polka) and Strauss Co. (Strauss) had condensed balance sheets as follows:
On January 2, 20X6, Polka borrowed $90,000 and used the proceeds to acquire 90% of the outstanding common shares of Strauss. This debt is payable in ten equal annual principal and accrued interest payments beginning December 30, 20X6. On the acquisition date, the fair value of Strauss was $100,000, and the excess cost of the investment over Strauss's carrying amount of acquired net assets should be allocated 60% to inventory and 40% to goodwill.
Noncurrent liabilities on the January 2,20X6,consolidated balance sheet should be:

A) $109,000
B) $55,000
C) $104,000
D) $131,000

Question 43

All of the following are examples of how a parent company may lose control over a subsidiary and discontinue future consolidation,except:

A) The parent sells some of its interest in the subsidiary.
B) The subsidiary issues additional common stock.
C) The subsidiary comes under the control of the government or other regulator.
D) The subsidiary issues a stock dividend or a stock split.

Question 44

The following information applies to Questions 52-53
On January 1, 20X8, Colorado Corporation acquired 75 percent of Denver Company's voting common stock for $90,000 cash. At that date, the fair value of the noncontrolling interest was $30,000. Denvers's balance sheet at the date of acquisition contained the following balances:
At the date of acquisition, the reported book values of Denver's assets and liabilities approximated fair value. Consolidating entries are being made to prepare a consolidated balance sheet immediately following the business combination.
Based on the preceding information,the amount of goodwill reported is:

A) $0.
B) $10,000.
C) $15,000.
D) $20,000.

Question 45

The following information applies to Questions 48-51:
On January 1, 20X8, Bristol Company acquired 80 percent of Animation Company's common stock for $280,000 cash. At that date, Animation reported common stock outstanding of $200,000 and retained earnings of $100,000, and the fair value of the noncontrolling interest was $70,000. The book values and fair values of Animation's assets and liabilities were equal, except for other intangible assets which had a fair value $50,000 greater than book value and an 8-year remaining life. Animation reported Bristol reported net income of $100,000 and paid dividends of $30,000 for both the years.
Based on the preceding information,what is the amount of consolidated comprehensive income reported for 20X8?

A) $125,000
B) $123,750
C) $118,750
D) $130,000

Question 46

The following information applies to Questions 48-51:
On January 1, 20X8, Bristol Company acquired 80 percent of Animation Company's common stock for $280,000 cash. At that date, Animation reported common stock outstanding of $200,000 and retained earnings of $100,000, and the fair value of the noncontrolling interest was $70,000. The book values and fair values of Animation's assets and liabilities were equal, except for other intangible assets which had a fair value $50,000 greater than book value and an 8-year remaining life. Animation reported Bristol reported net income of $100,000 and paid dividends of $30,000 for both the years.
Based on the preceding information,what is the amount of comprehensive income attributable to the controlling interest for 20X9?

A) $138,750
B) $131,000
C) $128,750
D) $135,000

Question 47

The following information applies to Questions 41-45
On January 1, 20X6, Polka Co. (Polka) and Strauss Co. (Strauss) had condensed balance sheets as follows:
On January 2, 20X6, Polka borrowed $90,000 and used the proceeds to acquire 90% of the outstanding common shares of Strauss. This debt is payable in ten equal annual principal and accrued interest payments beginning December 30, 20X6. On the acquisition date, the fair value of Strauss was $100,000, and the excess cost of the investment over Strauss's carrying amount of acquired net assets should be allocated 60% to inventory and 40% to goodwill.
Noncurrent assets on the January 2,20X6,consolidated balance sheet should be:

A) $130,000
B) $150,000
C) $134,000
D) $136,000

Question 48

The following information applies to Questions 48-51:
On January 1, 20X8, Bristol Company acquired 80 percent of Animation Company's common stock for $280,000 cash. At that date, Animation reported common stock outstanding of $200,000 and retained earnings of $100,000, and the fair value of the noncontrolling interest was $70,000. The book values and fair values of Animation's assets and liabilities were equal, except for other intangible assets which had a fair value $50,000 greater than book value and an 8-year remaining life. Animation reported Bristol reported net income of $100,000 and paid dividends of $30,000 for both the years.
Based on the preceding information,what is the amount of comprehensive income attributable to the controlling interest for 20X8?

A) $123,750
B) $118,750
C) $119,000
D) $104,000

Question 49

The following information applies to Questions 41-45
On January 1, 20X6, Polka Co. (Polka) and Strauss Co. (Strauss) had condensed balance sheets as follows:
On January 2, 20X6, Polka borrowed $90,000 and used the proceeds to acquire 90% of the outstanding common shares of Strauss. This debt is payable in ten equal annual principal and accrued interest payments beginning December 30, 20X6. On the acquisition date, the fair value of Strauss was $100,000, and the excess cost of the investment over Strauss's carrying amount of acquired net assets should be allocated 60% to inventory and 40% to goodwill.
Stockholders' equity on the January 2,20X6,consolidated balance sheet should be:

A) $85,000
B) $80,000
C) $90,000
D) $130,000

Question 50

The following information applies to Questions 52-53
On January 1, 20X8, Colorado Corporation acquired 75 percent of Denver Company's voting common stock for $90,000 cash. At that date, the fair value of the noncontrolling interest was $30,000. Denvers's balance sheet at the date of acquisition contained the following balances:
At the date of acquisition, the reported book values of Denver's assets and liabilities approximated fair value. Consolidating entries are being made to prepare a consolidated balance sheet immediately following the business combination.
Based on the preceding information,in the entry to eliminate the investment balance,

A) retained earnings will be credited for $20,000.
B) additional paid-in-capital will be credited for $20,000.
C) retained earnings will be credited for $10,000.
D) noncontrolling interest will be debited for 30,000.

Question 51

The following information applies to Questions 41-45
On January 1, 20X6, Polka Co. (Polka) and Strauss Co. (Strauss) had condensed balance sheets as follows:
On January 2, 20X6, Polka borrowed $90,000 and used the proceeds to acquire 90% of the outstanding common shares of Strauss. This debt is payable in ten equal annual principal and accrued interest payments beginning December 30, 20X6. On the acquisition date, the fair value of Strauss was $100,000, and the excess cost of the investment over Strauss's carrying amount of acquired net assets should be allocated 60% to inventory and 40% to goodwill.
Current assets on the January 2,20X6,consolidated balance sheet should be:

A) $79,000
B) $120,000
C) $90,000
D) $96,000

Question 52

On December 31,20X8,Defoe Corporation acquired 80 percent of Crusoe Company's common stock for $104,000 cash.The fair value of the noncontrolling interest at that date was determined to be $26,000.Data from the balance sheets of the two companies included the following amounts as of the date of acquisition:
On that date,the book values of Crusoe's assets and liabilities approximated fair value except for inventory,which had a fair value of $45,000,and buildings and equipment,which had a fair value of $100,000.At December 31,20X8,Defoe reported accounts payable of $15,000 to Crusoe,which reported an equal amount in its accounts receivable.
Required:
1)Provide the consolidating entries needed to prepare a consolidated balance sheet immediately following the business combination.
2)Prepare a consolidated balance sheet worksheet.

Problem 55 (continued):

Question 53

Pink Inc.sells half of its 70% interest in Brown Co.on January 1,20X6.On that date,the fair value of Brown as a whole is $940,000 and the carrying amount of Pink's 70% share of Brown is $320,000.What,if any,is the gain on the sale of half of Pink's interest in Brown?

A) $0
B) $9,000
C) $169,000
D) $338,000

Question 54

Magellan Corporation acquired 80 percent ownership of Dipper Corporation on January 1,20X8,for $200,000.At that date,Dipper reported common stock outstanding of $75,000 and retained earnings of $150,000.The fair value of the noncontrolling interest was $50,000.The differential is assigned to equipment,which had a fair value $25,000 greater than book value and a remaining economic life of five years at the date of the business combination.Dipper reported net income of $40,000 and paid dividends of $20,000 in 20X8.
Required:
1)Provide the journal entries recorded by Magellan during 20X8 on its books if it accounts for its investment in Dipper using the equity method.
2)Give the consolidating entries needed at December 31,20X8,to prepare consolidated financial statements.
Problem 56 (continued):

Question 55

The following information applies to Questions 48-51:
On January 1, 20X8, Bristol Company acquired 80 percent of Animation Company's common stock for $280,000 cash. At that date, Animation reported common stock outstanding of $200,000 and retained earnings of $100,000, and the fair value of the noncontrolling interest was $70,000. The book values and fair values of Animation's assets and liabilities were equal, except for other intangible assets which had a fair value $50,000 greater than book value and an 8-year remaining life. Animation reported Bristol reported net income of $100,000 and paid dividends of $30,000 for both the years.
Based on the preceding information,what is the amount of consolidated comprehensive income reported for 20X9?

A) $145,000
B) $135,000
C) $138,750
D) $128,750

Question 56

The following information applies to Questions 41-45
On January 1, 20X6, Polka Co. (Polka) and Strauss Co. (Strauss) had condensed balance sheets as follows:
On January 2, 20X6, Polka borrowed $90,000 and used the proceeds to acquire 90% of the outstanding common shares of Strauss. This debt is payable in ten equal annual principal and accrued interest payments beginning December 30, 20X6. On the acquisition date, the fair value of Strauss was $100,000, and the excess cost of the investment over Strauss's carrying amount of acquired net assets should be allocated 60% to inventory and 40% to goodwill.
Current liabilities on the January 2,20X6,consolidated balance sheet should be:

A) $49,000
B) $30,000
C) $40,000
D) $50,000

Question 57

Which of the following stockholders equity accounts are eliminated during the consolidation process?

A) Common Stock of the subsidiary
B) Preferred Stock of the subsidiary
C) Additional Paid-in Capital of the subsidiary
D) All of the above

Question 58

Top Corporation acquired 80 percent of Bottom Corporation's common stock on January 1,20X8,for $520,000.At that date,Bottom reported common stock outstanding of $250,000 and retained earnings of $375,000.Assume the fair value of the noncontrolling interest on January 1,20X8 was $130,000.The book values and fair values of Bottom's assets and liabilities were equal on the acquisition date,except for other intangible assets,which had a fair value $25,000 greater than book value and a 5-year remaining life.Top and Bottom reported the following data for 20X8 and 20X9:

a.Compute consolidated comprehensive income for 20X8 and 20X9.
b.Compute comprehensive income attributable to the controlling interest for 20X8 and 20X9.
Problem 58 (continued):