Deck 3: The Reporting Entity and the Consolidation of Less-Than-Wholly- Owned Subsidiaries With No Differential

Question 1

Maple Corporation and its subsidiary reported consolidated net income of $380,000 for the year ended December 31,20X5.Maple owns 75% of the common shares of its subsidiary,acquired at book value.Noncontrolling interest was assigned income of $25,000 in the consolidated income statement for 20X5.What is the amount of separate operating income reported by Maple for the year?

A)$95,000
B)$100,000
C)$280,000
D)$285,000

Answer 1

C

Question 2

On January 3,20X9,Pleat Company acquired 80 percent of Stitch Corporation's common stock for $344,000 in cash.At the acquisition date,the book values and fair values of Stitch's assets and liabilities were equal,and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Stitch.The stockholders' equity accounts of the two companies at the acquisition date are:
Noncontrolling interest was assigned income of $11,000 in Pleat's consolidated income statement for 20X9.
Based on the preceding information,what will be the amount of net income reported by Stitch Corporation in 20X9?

A)$44,000
B)$55,000
C)$66,000
D)$36,000

Answer 2

B

Question 3

On January 1,20X8,Potter Corporation acquired 90 percent of Shoemaker Company's voting stock,at underlying book value.The fair value of the noncontrolling interest was equal to 10 percent of the book value of Shoemaker at that date.Potter uses the fully adjusted equity method in accounting for its ownership of Shoemaker.On December 31,20X9,the trial balances of the two companies are as follows:

Based on the preceding information,what amount would be reported as total assets in the consolidated balance sheet at December 31,20X9?

A)$805,000
B)$712,000
C)$742,000
D)$1,102,000

Answer 3

C

Question 4

On January 2,20X2,Piranha Company acquired 70 percent of Salmon Corporation's common stock for $420,000 cash.At the acquisition date,the book values and fair values of Salmon' assets and liabilities were equal,and the fair value of the noncontrolling interest was equal to 30 percent of the total book value of Salmon.The stockholders' equity accounts of the two companies at the acquisition date are as follows:
Noncontrolling interest was assigned income of $15,000 in Piranha's consolidated income statement for 20X2.
Based on the preceding information,what amount will be assigned to noncontrolling interest on January 2,20X2,in the consolidated balance sheet?

A)$120,000
B)$126,000
C)$180,000
D)$420,000

Question 5

On January 1,20X6,Power Company acquired 80 percent of Strong Company's outstanding stock for cash.The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Strong Company's net assets at the date of acquisition.Selected balance sheet data at December 31,20X6 are as follows:

Based on the preceding information,what amount will Power Company report as common stock outstanding in its consolidated balance sheet at December 31,20X6?

A)$214,000
B)$150,000
C)$184,000
D)$230,000

Question 6

In which of the following cases would consolidation be inappropriate?

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.

Question 7

On January 2,20X2,Piranha Company acquired 70 percent of Salmon Corporation's common stock for $420,000 cash.At the acquisition date,the book values and fair values of Salmon' assets and liabilities were equal,and the fair value of the noncontrolling interest was equal to 30 percent of the total book value of Salmon.The stockholders' equity accounts of the two companies at the acquisition date are as follows:
Noncontrolling interest was assigned income of $15,000 in Piranha's consolidated income statement for 20X2.
Based on the preceding information,what is the total stockholders' equity in the consolidated balance sheet as of January 2,20X2?

A)$1,120,000
B)$1,300,000
C)$1,480,000
D)$1,900,000

Question 8

On January 2,20X2,Piranha Company acquired 70 percent of Salmon Corporation's common stock for $420,000 cash.At the acquisition date,the book values and fair values of Salmon' assets and liabilities were equal,and the fair value of the noncontrolling interest was equal to 30 percent of the total book value of Salmon.The stockholders' equity accounts of the two companies at the acquisition date are as follows:
Noncontrolling interest was assigned income of $15,000 in Piranha's consolidated income statement for 20X2.
Based on the preceding information,what will be the amount of net income reported by Salmon Corporation in 20X2?

A)$45,000
B)$50,000
C)$75,000
D)$105,000

Question 9

On January 1,20X8,Peta Company acquired 85 percent of Star Company's common stock for $100,000 cash.The fair value of the noncontrolling interest was determined to be 15 percent of the book value of Star at that date.What portion of the retained earnings reported in the consolidated balance sheet prepared immediately after the business combination is assigned to the noncontrolling interest?

A)None
B)15 percent
C)100 percent
D)Cannot be determined

Question 10

On January 3,20X9,Pleat Company acquired 80 percent of Stitch Corporation's common stock for $344,000 in cash.At the acquisition date,the book values and fair values of Stitch's assets and liabilities were equal,and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Stitch.The stockholders' equity accounts of the two companies at the acquisition date are:
Noncontrolling interest was assigned income of $11,000 in Pleat's consolidated income statement for 20X9.
Based on the preceding information,what amount will be assigned to the noncontrolling interest on January 3,20X9,in the consolidated balance sheet?

A)$86,000
B)$44,000
C)$68,800
D)$50,000

Question 11

On January 3,20X9,Pleat Company acquired 80 percent of Stitch Corporation's common stock for $344,000 in cash.At the acquisition date,the book values and fair values of Stitch's assets and liabilities were equal,and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Stitch.The stockholders' equity accounts of the two companies at the acquisition date are:
Noncontrolling interest was assigned income of $11,000 in Pleat's consolidated income statement for 20X9.
Based on the preceding information,what is the total stockholders' equity in the consolidated balance sheet as of January 3,20X9?

A)$1,580,000
B)$1,064,000
C)$1,150,000
D)$1,236,000

Question 12

Company Pea owns 90 percent of Company Essone which in turn owns 80 percent of Company Esstwo.Company Esstwo owns 100 percent of Company Essthree.Consolidated financial statements should be prepared to report the financial status and results of operations for:

A)Pea.
B)Pea plus Essone.
C)Pea plus Essone plus Esstwo.
D)Pea plus Essone plus Esstwo plus Essthree.

Question 13

Peta Corporation and its subsidiary reported consolidated net income of $320,000 for the year ended December 31,20X8.Peta owns 80 percent of the common shares of its subsidiary,acquired at book value.Noncontrolling interest was assigned income of $30,000 in the consolidated income statement for 20X8.What is the amount of separate operating income reported by Peta for the year?

A)$170,000
B)$150,000
C)$120,000
D)$200,000

Question 14

On January 3,20X9,Pine Company acquired 75 percent of Sap Company's outstanding common stock for cash.The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Sap Company's net assets at the date of acquisition.Selected balance sheet data at December 31,20X9,are as follows:

Based on the preceding information,what amount should be reported as noncontrolling interest in net assets in Pine Company's December 31,20X9,consolidated balance sheet?

A)$90,000
B)$54,000
C)$36,000
D)$0

Question 15

Consolidated financial statements tend to be most useful for:

A)Creditors of a consolidated subsidiary.
B)Investors and long-term creditors of the parent company.
C)Short-term creditors of the parent company.
D)Stockholders of a consolidated subsidiary.

Question 16

Putter Corporation owns 80 percent of the voting common shares of Sand Corporation.Noncontrolling interest was assigned $24,000 of income in the 20X9 consolidated income statement.What amount of net income did Sand Corporation report for the year?

A)$150,000
B)$96,000
C)$120,000
D)$30,000

Question 17

On January 3,20X9,Pine Company acquired 75 percent of Sap Company's outstanding common stock for cash.The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Sap Company's net assets at the date of acquisition.Selected balance sheet data at December 31,20X9,are as follows:

Based on the preceding information,what amount will Pine Company report as common stock outstanding in its consolidated balance sheet at December 31,20X9?

A)$120,000
B)$180,000
C)$156,000
D)$264,000

Question 18

Paul Corporation owns 70 percent of the voting common shares of Sally Corporation,purchased at book value.Noncontrolling interest was assigned $21,000 of income in the 20X0 consolidated income statement.What amount of net income did Sally Corporation report for the year?

A)$70,000
B)$63,000
C)$30,000
D)$147,000

Question 19

On January 1,20X8,Potter Corporation acquired 90 percent of Shoemaker Company's voting stock,at underlying book value.The fair value of the noncontrolling interest was equal to 10 percent of the book value of Shoemaker at that date.Potter uses the fully adjusted equity method in accounting for its ownership of Shoemaker.On December 31,20X9,the trial balances of the two companies are as follows:

Based on the preceding information,what amount would be reported as total liabilities in the consolidated balance sheet at December 31,20X9?

A)$330,000
B)$712,000
C)$318,000
D)$130,000

Question 20

On January 1,20X6,Power Company acquired 80 percent of Strong Company's outstanding stock for cash.The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Strong Company's net assets at the date of acquisition.Selected balance sheet data at December 31,20X6 are as follows:

Based on the preceding information,what amount should be reported as noncontrolling interest in net assets in Power Company's December 31,20X6,consolidated balance sheet?

A)$35,200
B)$48,200
C)$76,800
D)$112,800

Question 21

On January 1,20X8,Potter Corporation acquired 90 percent of Shoemaker Company's voting stock,at underlying book value.The fair value of the noncontrolling interest was equal to 10 percent of the book value of Shoemaker at that date.Potter uses the fully adjusted equity method in accounting for its ownership of Shoemaker.On December 31,20X9,the trial balances of the two companies are as follows:

Based on the preceding information,what amount would be reported as noncontrolling interest in the consolidated balance sheet at December 31,20X9?

A)$27,000
B)$4,000
C)$15,000
D)$18,000

Question 22

Consolidated financial statements are required by GAAP in certain circumstances.This information can be very useful to stockholders and creditors.Yet,there are limitations to these financial statements for which the users must be aware.What are at least three (3)limitations of consolidated financial statements?

Question 23

Pepper Company acquired 60 percent of the common stock of Safton Corporation on December 31,20X9.On the date of acquisition,Pepper held land with a book value of $200,000 and a fair value of $350,000;Safton held land with a book value of $300,000 and fair value of $300,000.At what amount would land be reported in a consolidated balance sheet prepared immediately after the combination?

A)$290,000
B)$500,000
C)$590,000
D)$650,000

Question 24

On January 1,20X8,Potter Corporation acquired 90 percent of Shoemaker Company's voting stock,at underlying book value.The fair value of the noncontrolling interest was equal to 10 percent of the book value of Shoemaker at that date.Potter uses the fully adjusted equity method in accounting for its ownership of Shoemaker.On December 31,20X9,the trial balances of the two companies are as follows:

Based on the preceding information,what amount would be reported as income to controlling interest in the consolidated financial statements for 20X9?

A)$168,000
B)$138,000
C)$164,000
D)$150,000

Question 25

For which of the following reporting units is the preparation of combined financial statements most appropriate?

A)A corporation and a foreign subsidiary with nonintegrated homogeneous operations.
B)A corporation and a majority-owned subsidiary with nonhomogeneous operations.
C)Several corporations with related operations owned by one individual.
D)Several corporations with related operations with some common individual owners.

Question 26

Which of the following statements are true relative to US GAAP and IFRS consolidation rules?

A)US GAAP allows for two consolidation models,the VIE model and the voting interest model.
B)US GAAP and IFRS both use the notion of control to determine whether consolidation is appropriate.
C)US GAAP and IFRS differ to some degree as to the definition of control.
D)All of the given statements are true relative to US GAAP and IFRS consolidation rules.

Question 27

On January 1,20X8,Potter Corporation acquired 90 percent of Shoemaker Company's voting stock,at underlying book value.The fair value of the noncontrolling interest was equal to 10 percent of the book value of Shoemaker at that date.Potter uses the fully adjusted equity method in accounting for its ownership of Shoemaker.On December 31,20X9,the trial balances of the two companies are as follows:

Based on the preceding information,what amount would be reported as total stockholders' equity in the consolidated balance sheet at December 31,20X9?

A)$412,000
B)$394,000
C)$542,000
D)$348,000

Question 28

On January 1,20X9,Peanuts Corporation acquired 80 percent of Schulz Corporation's voting common stock.On that date,Peanuts had equipment with a book value of $50,000 and a fair value of $200,000.Schulz's buildings and equipment had a book value of $300,000 and a fair value of $300,000 at the time of acquisition.What will be the amount at which buildings and equipment will be reported in consolidated statements immediately following the acquisition?

A)$350,000
B)$340,000
C)$280,000
D)$300,000

Question 29

Pluto Company owns 80 percent of the common stock of Star Corporation.During the year,Pluto reported sales of $1,000,000,and Star reported sales of $500,000,including sales to Pluto of $80,000.The amount of sales that should be reported in the consolidated income statement for the year is:

A)$500,000.
B)$1,300,000.
C)$1,420,000.
D)$1,500,000.

Question 30

ASC 805 is related to the Consolidation of Variable Interest Entities.Describe what a Variable Interest Entity is and discuss why the FASB has difficulty in prescribing when these entities are consolidated?

Question 31

In reading a set of consolidated financial statements you are surprised to see the term noncontrolling interest not reported under the Liability section of the Balance Sheet.
Required:
a.What is a noncontrolling interest?
b.Why must it be reported in the financial statements as an element of equity rather than a liability?

Question 32

Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31,20X9.On the date of acquisition,Princeton held land with a book value of $150,000 and a fair value of $300,000;Sheffield held land with a book value of $500,000 and fair value of $500,000.At what amount would land be reported in a consolidated balance sheet prepared immediately after the combination?

A)$650,000
B)$500,000
C)$550,000
D)$375,000

Question 33

Which of the following usually does not represent a variable interest?

A)Common stock,with no special features or provisions
B)Senior debt
C)Subordinated debt
D)Loan or asset guarantees

Question 34

All of the following statements accurately describe Special Purpose Entities (SPEs)except for:

A)SPEs are corporations,trusts or partnerships created for a single specified purpose.
B)SPEs usually have no substantive operations and are often used for financing operations.
C)Among other things,SPEs are used for asset securitization,risk sharing and taking advantage of tax statues.
D)A variable interest entity (VIE)is a type of SPE with a limited number of equity investors.

Question 35

On January 1,20X8,Potter Corporation acquired 90 percent of Shoemaker Company's voting stock,at underlying book value.The fair value of the noncontrolling interest was equal to 10 percent of the book value of Shoemaker at that date.Potter uses the fully adjusted equity method in accounting for its ownership of Shoemaker.On December 31,20X9,the trial balances of the two companies are as follows:

Based on the preceding information,what amount would be reported as retained earnings in the consolidated balance sheet prepared at December 31,20X9?

A)$314,000
B)$294,000
C)$150,000
D)$424,000

Question 36

Primo Corporation acquired 60 percent of Secondo Corporation's voting common stock.On the date of acquisition,Primo had equipment with a book value of $50,000 and a fair value of $150,000.Secondo's buildings and equipment had a book value of $200,000 and a fair value of $200,000 at the time of the acquisition.What will be the amount at which buildings and equipment will be reported in consolidated statements immediately following the acquisition?

A)$150,000
B)$200,000
C)$230,000
D)$250,000

Question 37

On January 1,20X5,Playa Company acquires 90 percent ownership in Seaside Corporation for $180,000.The fair value of the noncontrolling interest at that time is determined to be $20,000.Seaside reports net assets with a book value of $200,000 and fair value of $200,000.Playa Company reports net assets with a book value of $480,000 and a fair value of $525,000 at that time,excluding its investment in Seaside.What will be the amount of consolidated net assets that would be reported immediately after the combination?

A)$544,000
B)$660,000
C)$680,000
D)$725,000

Question 38

On December 31,20X9,Play Company acquired 80 percent of the common stock of Station Company.At the time,Play held land with a book value of $100,000 and a fair value of $260,000;Station held land with a book value of $600,000 and fair value of $600,000.At what amount would land be reported in a consolidated balance sheet prepared immediately after the combination?

A)$550,000
B)$590,000
C)$700,000
D)$860,000

Question 39

On January 1,20X9,Pallet Company acquires 80 percent ownership in Slat Corporation for $200,000.The fair value of the noncontrolling interest at that time is determined to be $50,000.Slat reports net assets with a book value of $250,000 and fair value of $250,000.Pallet Company reports net assets with a book value of $600,000 and a fair value of $650,000 at that time,excluding its investment in Slat.What will be the amount of consolidated net assets that would be reported immediately after the combination?

A)$680,000
B)$800,000
C)$900,000
D)$850,000