Deck 8: Consolidated Cash Flows and Changes in Ownership

Question 1

On January 1, 2019, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2020, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date.
Marvin's net income and dividends for 2019 and 2020 are as follows:
Marvin's goodwill suffered an impairment loss of $5,000 during 2019. Hanson Inc. uses the equity method to account for its investment in Marvin Inc.
What is the amount of the acquisition differential amortization for 2019 (excluding goodwill impairment)?

A) $4,375
B) $5,625
C) $6,250
D) $12,000

Answer 1

C

Question 2

ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 on January 1, 2020. On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,000, respectively. 123's book values approximated its fair values on the acquisition date with the exception of a patent and a trademark, neither of which had been previously recorded. The fair values of the patent and trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What is the amount of undepleted acquisition differential (including goodwill) after the sale?

A) $84,000
B) $140,000
C) $200,000
D) $300,000

Answer 2

C

Question 3

On January 1, 2019, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2020, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date.
Marvin's net income and dividends for 2019 and 2020 are as follows:
Marvin's goodwill suffered an impairment loss of $5,000 during 2019. Hanson Inc. uses the equity method to account for its investment in Marvin Inc.
Assuming that Hanson had no recorded goodwill prior to January 1, 2019, what would be the amount of goodwill appearing on Hanson's December 31, 2020 Consolidated Balance Sheet?

A) $75,000
B) $136,500
C) $195,000
D) $209,900

Answer 3

C

Question 4

ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 on January 1, 2020. On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,000, respectively. 123's book values approximated its fair values on the acquisition date with the exception of a patent and a trademark, neither of which had been previously recorded. The fair values of the patent and trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What would be the carrying amount of the "Investment in 123 Inc." account after the sale?

A) $350,000.
B) $70,000.
C) $280,000.
D) $292,250.

Question 5

On January 1, 2019, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2020, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date.
Marvin's net income and dividends for 2019 and 2020 are as follows:
Marvin's goodwill suffered an impairment loss of $5,000 during 2019. Hanson Inc. uses the equity method to account for its investment in Marvin Inc.
What would be the amount of the unamortized acquisition differential (excluding goodwill) at the end of 2020?

A) Nil.
B) $35,000
C) $37,500
D) $42,000

Question 6

ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 on January 1, 2020. On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,000, respectively. 123's book values approximated its fair values on the acquisition date with the exception of a patent and a trademark, neither of which had been previously recorded. The fair values of the patent and trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What would be the amount of the gain or loss on the sale of the 7,000 shares?

A) A loss of $12,250.
B) A loss of $70,000.
C) A gain of $12,250.
D) A gain of $57,750.

Question 7

A Inc. owns 80% of B's outstanding voting shares. Under which of the following scenarios would A's ownership percentage of B change?
A)

A) B Inc. announces a 2-for-1 stock split to all its common shareholders.
B) B issues an additional 10,000 voting shares; A acquires 8,000 shares of the new issue.
C) B issues an additional 10,000 voting shares; A acquires 6,400 shares of the new issue.
D) B retires 20,000 voting share, and in doing so, buy back 16,000 shares from

Question 8

On January 1, 2019, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2020, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date.
Marvin's net income and dividends for 2019 and 2020 are as follows:
Marvin's goodwill suffered an impairment loss of $5,000 during 2019. Hanson Inc. uses the equity method to account for its investment in Marvin Inc.
What is the amount of the acquisition differential amortization (excluding goodwill impairment) for 2020?

A) $1,500
B) $6,250
C) $7,750
D) $8,750

Question 9

ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 on January 1, 2020. On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,000, respectively. 123's book values approximated its fair values on the acquisition date with the exception of a patent and a trademark, neither of which had been previously recorded. The fair values of the patent and trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What is ABC's ownership interest in 123 after its sale?

A) 70%
B) 14%
C) 42%
D) 56%

Question 10

On January 1, 2019, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2020, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date.
Marvin's net income and dividends for 2019 and 2020 are as follows:
Marvin's goodwill suffered an impairment loss of $5,000 during 2019. Hanson Inc. uses the equity method to account for its investment in Marvin Inc.
What is Hanson's ownership interest in Marvin after its January 1, 2020 purchase?

A) 60%
B) 70%
C) 80%
D) 90%

Question 11

ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 on January 1, 2020. On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,000, respectively. 123's book values approximated its fair values on the acquisition date with the exception of a patent and a trademark, neither of which had been previously recorded. The fair values of the patent and trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What percentage of its Investment in 123 was sold by ABC?

A) 14%
B) 50%
C) 56%
D) 20%

Question 12

On January 1, 2019, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2020, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date.
Marvin's net income and dividends for 2019 and 2020 are as follows:
Marvin's goodwill suffered an impairment loss of $5,000 during 2019. Hanson Inc. uses the equity method to account for its investment in Marvin Inc.
By how much would the non-controlling interest amount have changed as a result of Hanson's second purchase of shares on January 1, 2020?

A) A decrease of $43,975.
B) A decrease of $43,350.
C) An increase of $37,857.
D) An increase of $43,975.

Question 13

On January 1, 2019, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2020, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date.
Marvin's net income and dividends for 2019 and 2020 are as follows:
Marvin's goodwill suffered an impairment loss of $5,000 during 2019. Hanson Inc. uses the equity method to account for its investment in Marvin Inc.
What is the amount of goodwill arising from Hanson's January 1, 2019 acquisition?

A) $50,000
B) $60,000
C) $80,000
D) $200,000

Question 14

On January 1, 2019, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2020, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date.
Marvin's net income and dividends for 2019 and 2020 are as follows:
Marvin's goodwill suffered an impairment loss of $5,000 during 2019. Hanson Inc. uses the equity method to account for its investment in Marvin Inc.
Assuming that Hanson had no recorded goodwill prior to January 1, 2019, what would be the amount of goodwill appearing on Hanson's December 31, 2019 consolidated balance sheet?

A) $75,000
B) $80,000
C) $117,000
D) $195,000

Question 15

ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 on January 1, 2020. On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,000, respectively. 123's book values approximated its fair values on the acquisition date with the exception of a patent and a trademark, neither of which had been previously recorded. The fair values of the patent and trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What is the amount of the non-controlling interest at acquisition?

A) $8,400.
B) $350,000.
C) $50,000.
D) $150,000.

Question 16

On January 1, 2019, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2020, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date.
Marvin's net income and dividends for 2019 and 2020 are as follows:
Marvin's goodwill suffered an impairment loss of $5,000 during 2019. Hanson Inc. uses the equity method to account for its investment in Marvin Inc.
What effect (if any) would Hanson's January 1, 2020 purchase have on the company's consolidated cash flows for the year?

A) There would be no effect.
B) There would be a decrease in cash of $45,000 to the consolidated entity.
C) There would be a decrease in cash of $200,000 to the consolidated entity.
D) There would be a decrease in cash of $236,000 to the consolidated entity.

Question 17

On January 1, 2019, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2020, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date.
Marvin's net income and dividends for 2019 and 2020 are as follows:
Marvin's goodwill suffered an impairment loss of $5,000 during 2019. Hanson Inc. uses the equity method to account for its investment in Marvin Inc.
What percentage of Marvin's shares was purchased by Hanson on January 1, 2019?

A) 10%
B) 60%
C) 70%
D) 90%

Question 18

ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 on January 1, 2020. On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,000, respectively. 123's book values approximated its fair values on the acquisition date with the exception of a patent and a trademark, neither of which had been previously recorded. The fair values of the patent and trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What is the amount of goodwill arising from this business combination?

A) ($5,000)
B) Nil
C) $5,000
D) $150,000

Question 19

Assume that X Corp. controls Y Corp., X constantly purchases and sells Y's voting shares on the open market while always ensuring that it maintains a controlling interest over Y. Which of the following statements pertaining to X buying and selling activity is correct?

A) X's activity has no effect on the non-controlling interest.
B) As X sells shares of Y, the non-controlling interest increases.
C) As X sells shares of Y, the non-controlling interest decreases.
D) As X buys shares of Y, the non-controlling interest increases.

Question 20

ABC Inc. purchased 35,000 voting shares out of 123 Inc.'s 50,000 outstanding voting shares for $350,000 on January 1, 2020. On the date of acquisition, 123's common shares and retained earnings were valued at $120,000 and $180,000, respectively. 123's book values approximated its fair values on the acquisition date with the exception of a patent and a trademark, neither of which had been previously recorded. The fair values of the patent and trademark on the date of acquisition were $30,000 and $20,000 respectively.
On January 2, 2020, ABC sold 7,000 shares of 123 on the open market for $57,750.
ABC Inc. uses the equity method to account for its investment in 123 Inc.
What is the carrying value of the trademark after the sale?

A) $12,600
B) $18,000
C) $20,000
D) $30,000

Question 21

The following information pertains to the shareholdings of an affiliated group of companies. The respective ownership interest of each company is outlined below. A Inc.:
A Inc. owns 75% of J Inc. and 60% of G Inc.
J Inc.:
J Inc. owns 60% of D Inc. and 20% of G Inc.
G Inc.:
G Inc. owns 10% of D Inc. and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31, 2020 were as follows:
Unrealized intercompany profits (pre-tax) earned by the various companies for the year ended December 31, 2020 are shown below:
All companies are subject to a 25% tax rate.
How much is A Inc.'s Consolidated Net Income for 2020?

A) $1,510,000
B) $1,773,625
C) $1,796,125
D) $2,170,000

Question 22

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2020. The balance sheets of both companies on that date are shown below (after Whine acquired the shares): $\begin{array}{|l|r|r|}\hline & \text { WHINE } & \text { DINE } \\\hline \text { Cash } & \$ 250,000 & \$ 200,000 \\\hline \text { Accounts Receivable } & \$ 450,000 & \$ 300,000 \\\hline \text { Inventory } & \$ 500,000 & \$ 100,000 \\\hline \text { Investment in Dine Inc. } & \$ 500,000 & \\\hline \text { Land } & \$ 140,000 & \\\hline \text { Equipment (net) } & \$ 460,000 & \$ 200,000 \\\hline \text { Total Assets } & \mathbf{\$ 2 . 3 0 0 , 0 0 0} & \mathbf{\$ 8 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 900,000 & \$ 200,000 \\\hline \text { Bonds Payable } & \$ 500,000 & \$ 100,000 \\\hline \text { Common Shares } & \$ 500,000 & \$ 200,000 \\\hline \text { Retained Earnings } & \$ 400,000 & \$ 300,000 \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{2 , 3 0 0 , 0 0 0} & \$ \mathbf{8 0 0 , 0 0 0} \\\hline \end{array}$ Also on December 31, 2020 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition.
Whine Inc. uses the equity method to account for its investment in Dine Inc.
There were no unrealized intercompany profits on December 31, 2020.
What would be the amount of the non-controlling interest appearing on Whine's consolidated balance sheet as at December 31, 2020 after the issue of shares to Chompster?

A) $125,000
B) $222,000
C) $264,000
D) $282,600

Question 23

P Corp. owns 800 voting common shares out of Q Corp.'s 1,000 outstanding voting common shares, which it accounts for using the equity method. On December 31, 2018, the shareholder's equity section of Q Corp. was comprised of $15,000 in common shares and retained earnings of $450,000. Q Corp. reported net income and paid dividends of $120,000 and $20,000 respectively for the year ended December 31, 2019.
There have been no goodwill impairment losses since acquisition.
On January 1, 2020, P Corp. sold 200 shares of its investment in Q Corp. for $125,000.
On January 1, 2019, the investment account had a balance of $420,000. The acquisition differential was to be allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).
What is the gain or loss on P's sale of its shares on Q Corp.?

A) A $3,000 loss.
B) A $2,000 loss.
C) A $1,600 gain.
D) A $3,000 gain.

Question 24

On January 1, 2019, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2020, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date.
Marvin's net income and dividends for 2019 and 2020 are as follows:
Marvin's goodwill suffered an impairment loss of $5,000 during 2019. Hanson Inc. uses the equity method to account for its investment in Marvin Inc.
What effect would the purchase at January 1, 2020 have on the consolidated equity of Hanson?

A) There would be no effect.
B) There would be a reduction in consolidated retained earnings of $1,025.
C) There would be a reduction in consolidated contributed surplus of $1,025.
D) There would be an increase in consolidated retained earnings of $1,025.

Question 25

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2020. The balance sheets of both companies on that date are shown below (after Whine acquired the shares): $\begin{array}{|l|r|r|}\hline & \text { WHINE } & \text { DINE } \\\hline \text { Cash } & \$ 250,000 & \$ 200,000 \\\hline \text { Accounts Receivable } & \$ 450,000 & \$ 300,000 \\\hline \text { Inventory } & \$ 500,000 & \$ 100,000 \\\hline \text { Investment in Dine Inc. } & \$ 500,000 & \\\hline \text { Land } & \$ 140,000 & \\\hline \text { Equipment (net) } & \$ 460,000 & \$ 200,000 \\\hline \text { Total Assets } & \mathbf{\$ 2 . 3 0 0 , 0 0 0} & \mathbf{\$ 8 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 900,000 & \$ 200,000 \\\hline \text { Bonds Payable } & \$ 500,000 & \$ 100,000 \\\hline \text { Common Shares } & \$ 500,000 & \$ 200,000 \\\hline \text { Retained Earnings } & \$ 400,000 & \$ 300,000 \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{2 , 3 0 0 , 0 0 0} & \$ \mathbf{8 0 0 , 0 0 0} \\\hline \end{array}$ Also on December 31, 2020 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition.
Whine Inc. uses the equity method to account for its investment in Dine Inc.
There were no unrealized intercompany profits on December 31, 2020.
What would be the gain or loss arising from Dine's share issue to Chompster?

A) A loss of $4,000.
B) A loss of $2,400.
C) A gain of $2,400.
D) A gain of $4,000.

Question 26

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2020. The balance sheets of both companies on that date are shown below (after Whine acquired the shares): $\begin{array}{|l|r|r|}\hline & \text { WHINE } & \text { DINE } \\\hline \text { Cash } & \$ 250,000 & \$ 200,000 \\\hline \text { Accounts Receivable } & \$ 450,000 & \$ 300,000 \\\hline \text { Inventory } & \$ 500,000 & \$ 100,000 \\\hline \text { Investment in Dine Inc. } & \$ 500,000 & \\\hline \text { Land } & \$ 140,000 & \\\hline \text { Equipment (net) } & \$ 460,000 & \$ 200,000 \\\hline \text { Total Assets } & \mathbf{\$ 2 . 3 0 0 , 0 0 0} & \mathbf{\$ 8 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 900,000 & \$ 200,000 \\\hline \text { Bonds Payable } & \$ 500,000 & \$ 100,000 \\\hline \text { Common Shares } & \$ 500,000 & \$ 200,000 \\\hline \text { Retained Earnings } & \$ 400,000 & \$ 300,000 \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{2 , 3 0 0 , 0 0 0} & \$ \mathbf{8 0 0 , 0 0 0} \\\hline \end{array}$ Also on December 31, 2020 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition.
Whine Inc. uses the equity method to account for its investment in Dine Inc.
There were no unrealized intercompany profits on December 31, 2020.
What would be Whine's ownership interest in Dine following Chompster's purchase of shares in Dine?

A) 60%
B) 64%
C) 75%
D) 80%

Question 27

The following information pertains to the shareholdings of an affiliated group of companies. The respective ownership interest of each company is outlined below. A Inc.:
A Inc. owns 75% of J Inc. and 60% of G Inc.
J Inc.:
J Inc. owns 60% of D Inc. and 20% of G Inc.
G Inc.:
G Inc. owns 10% of D Inc. and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31, 2020 were as follows:
Unrealized intercompany profits (pre-tax) earned by the various companies for the year ended December 31, 2020 are shown below:
All companies are subject to a 25% tax rate.
What is the Consolidated Net Income for the year attributable to the shareholders of A Inc.?

A) $1,510,000
B) $1,796,125
C) $1,817,500
D) $2,170,000

Question 28

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2020. The balance sheets of both companies on that date are shown below (after Whine acquired the shares): Also on December 31, 2020 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition.
Whine Inc. uses the equity method to account for its investment in Dine Inc.
There were no unrealized intercompany profits on December 31, 2020.
What would be the amount of cash appearing on Whine's December 31, 2020 consolidated balance sheet (after the issue of shares to Chompster)?

A) $450,000
B) $610,000
C) $850,000
D) $810,000

Question 29

P Corp. owns 800 voting common shares out of Q Corp.'s 1,000 outstanding voting common shares, which it accounts for using the equity method. On December 31, 2018, the shareholder's equity section of Q Corp. was comprised of $15,000 in common shares and retained earnings with the amount of $450,000. Q Corp. reported net Income and paid dividends of $120,000 and $20,000 respectively for the year ended December 31, 2019.
On January 1, 2020, P Corp. sold 200 shares of its investment in Q Corp. for $125,000. On January 1, 2019, the investment account had a balance of $420,000. The acquisition differential was to be allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).
What was the amount of acquisition differential amortization for 2019?

A) Nil
B) $6,000
C) $8,000
D) $12,000

Question 30

Assuming that A acquired a controlling interest in B through numerous small acquisitions, what would be appropriate accounting with respect to these acquisitions?

A) An acquisition differential must be computed following each purchase.
B) The equity method must be adopted retroactively once 20% ownership is obtained.
C) The purchases should all be grouped together and treated as a single block purchase.
D) The cost method should be used until a controlling interest is acquired.

Question 31

The following information pertains to the shareholdings of an affiliated group of companies. The respective ownership interest of each company is outlined below. A Inc.:
A Inc. owns 75% of J Inc. and 60% of G Inc.
J Inc.:
J Inc. owns 60% of D Inc. and 20% of G Inc.
G Inc.:
G Inc. owns 10% of D Inc. and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31, 2020 were as follows:
Unrealized intercompany profits (pre-tax) earned by the various companies for the year ended December 31, 2020 are shown below:
All companies are subject to a 25% tax rate.
How much is the non-controlling interest in A Inc.'s Consolidated Net Income for 2020?

A) Nil
B) $382,500
C) $373,875
D) $400,000

Question 32

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2020. The balance sheets of both companies on that date are shown below (after Whine acquired the shares): $\begin{array}{|l|r|r|}\hline & \text { WHINE } & \text { DINE } \\\hline \text { Cash } & \$ 250,000 & \$ 200,000 \\\hline \text { Accounts Receivable } & \$ 450,000 & \$ 300,000 \\\hline \text { Inventory } & \$ 500,000 & \$ 100,000 \\\hline \text { Investment in Dine Inc. } & \$ 500,000 & \\\hline \text { Land } & \$ 140,000 & \\\hline \text { Equipment (net) } & \$ 460,000 & \$ 200,000 \\\hline \text { Total Assets } & \mathbf{\$ 2 . 3 0 0 , 0 0 0} & \mathbf{\$ 8 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 900,000 & \$ 200,000 \\\hline \text { Bonds Payable } & \$ 500,000 & \$ 100,000 \\\hline \text { Common Shares } & \$ 500,000 & \$ 200,000 \\\hline \text { Retained Earnings } & \$ 400,000 & \$ 300,000 \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{2 , 3 0 0 , 0 0 0} & \$ \mathbf{8 0 0 , 0 0 0} \\\hline \end{array}$ Also on December 31, 2020 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition.
Whine Inc. uses the equity method to account for its investment in Dine Inc.
There were no unrealized intercompany profits on December 31, 2020.
The amount of retained earnings appearing on the December 31, 2020 consolidated balance sheet would be:

A) $384,000.
B) $396,000.
C) $400,000.
D) $402,400.

Question 33

X owns 70% of Y, which in turn owns 25% of Z. X, also owns 20% of Z. Which of the following statements is correct?

A) X has direct control over Z.
B) X has indirect control over Z.
C) X has no control over Z.
D) X has contingent control over Z.

Question 34

On January 1, 2019, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common shares and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2020, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date.
Marvin's net income and dividends for 2019 and 2020 are as follows:
Marvin's goodwill suffered an impairment loss of $5,000 during 2019. Hanson Inc. uses the equity method to account for its investment in Marvin Inc.
What would be the balance in Hanson's investment in Marvin account on December 31, 2020?

A) $303,000
B) $347,900
C) $348,925
D) $349,650

Question 35

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2020. The balance sheets of both companies on that date are shown below (after Whine acquired the shares): $\begin{array}{|l|r|r|}\hline & \text { WHINE } & \text { DINE } \\\hline \text { Cash } & \$ 250,000 & \$ 200,000 \\\hline \text { Accounts Receivable } & \$ 450,000 & \$ 300,000 \\\hline \text { Inventory } & \$ 500,000 & \$ 100,000 \\\hline \text { Investment in Dine Inc. } & \$ 500,000 & \\\hline \text { Land } & \$ 140,000 & \\\hline \text { Equipment (net) } & \$ 460,000 & \$ 200,000 \\\hline \text { Total Assets } & \mathbf{\$ 2 . 3 0 0 , 0 0 0} & \mathbf{\$ 8 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 900,000 & \$ 200,000 \\\hline \text { Bonds Payable } & \$ 500,000 & \$ 100,000 \\\hline \text { Common Shares } & \$ 500,000 & \$ 200,000 \\\hline \text { Retained Earnings } & \$ 400,000 & \$ 300,000 \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{2 , 3 0 0 , 0 0 0} & \$ \mathbf{8 0 0 , 0 0 0} \\\hline \end{array}$ Also on December 31, 2020 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition.
Whine Inc. uses the equity method to account for its investment in Dine Inc.
There were no unrealized intercompany profits on December 31, 2020.
What would be the amount of the non-controlling interest appearing on Whine's consolidated balance sheet as at December 31, 2020 before the issue of shares to Chompster?

A) $125,000
B) $160,000
C) $222,000
D) $264,000

Question 36

P Corp. owns 800 voting common shares out of Q Corp.'s 1,000 outstanding voting common shares, which it accounts for using the equity method. On December 31, 2018, the shareholder's equity section of Q Corp. was comprised of $15,000 in common shares and retained earnings with the amount of $450,000. Q Corp. reported net Income and paid dividends of $120,000 and $20,000 respectively for the year ended December 31, 2019.
There have been no goodwill impairment losses since acquisition.
On January 1, 2020, P Corp. sold 200 shares of its investment in Q Corp. for $125,000.
On January 1, 2019, the investment account had a balance of $420,000. The acquisition differential was to be allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).
What is the balance in the investment in Q account immediately following the sale?

A) Nil.
B) $80,000
C) $295,200
D) $370,200

Question 37

P Corp. owns 800 voting common shares out of Q Corp.'s 1,000 outstanding voting common shares, which it accounts for using the equity method. On December 31, 2018, the shareholder's equity section of Q Corp. was comprised of $15,000 in common shares and retained earnings with the amount of $450,000. Q Corp. reported net Income and paid dividends of $120,000 and $20,000 respectively for the year ended December 31, 2019.
There have been no goodwill impairment losses since acquisition.
On January 1, 2020, P Corp. sold 200 shares of its investment in Q Corp. for $125,000. On January 1, 2019, the investment account had a balance of $420,000. The acquisition differential was to be allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).
How much of the acquisition differential was allocated to patents on January 1, 2019?

A) Nil
B) $6,000
C) $18,000
D) $36,000

Question 38

P Corp. owns 800 voting common shares out of Q Corp.'s 1,000 outstanding voting common shares, which it accounts for using the equity method. On December 31, 2018, the shareholder's equity section of Q Corp. was comprised of $15,000 in common shares and retained earnings with the amount of $450,000. Q Corp. reported net Income and paid dividends of $120,000 and $20,000 respectively for the year ended December 31, 2019.
There have been no goodwill impairment losses since acquisition.
On January 1, 2020, P Corp. sold 200 shares of its investment in Q Corp. for $125,000. On January 1, 2019, the investment account had a balance of $420,000. The acquisition differential was to be allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).
How much of the acquisition differential was allocated to equipment on January 1, 2019?

A) Nil
B) $6,000
C) $18,000
D) $36,000*[$465,000 - ($420,000/.80)] = $60,000 (undepleted AD).

Question 39

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2020. The balance sheets of both companies on that date are shown below (after Whine acquired the shares): $\begin{array}{|l|r|r|}\hline & \text { WHINE } & \text { DINE } \\\hline \text { Cash } & \$ 250,000 & \$ 200,000 \\\hline \text { Accounts Receivable } & \$ 450,000 & \$ 300,000 \\\hline \text { Inventory } & \$ 500,000 & \$ 100,000 \\\hline \text { Investment in Dine Inc. } & \$ 500,000 & \\\hline \text { Land } & \$ 140,000 & \\\hline \text { Equipment (net) } & \$ 460,000 & \$ 200,000 \\\hline \text { Total Assets } & \mathbf{\$ 2 . 3 0 0 , 0 0 0} & \mathbf{\$ 8 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 900,000 & \$ 200,000 \\\hline \text { Bonds Payable } & \$ 500,000 & \$ 100,000 \\\hline \text { Common Shares } & \$ 500,000 & \$ 200,000 \\\hline \text { Retained Earnings } & \$ 400,000 & \$ 300,000 \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{2 , 3 0 0 , 0 0 0} & \$ \mathbf{8 0 0 , 0 0 0} \\\hline \end{array}$ Also on December 31, 2020 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition.
Whine Inc. uses the equity method to account for its investment in Dine Inc.
There were no unrealized intercompany profits on December 31, 2020.
What would be the amount of the unamortized acquisition differential on December 31, 2020?

A) $40,000
B) $50,000
C) $80,000
D) $125,000

Question 40

P Corp. owns 800 voting common shares out of Q Corp.'s 1,000 outstanding voting common shares, which it accounts for using the equity method. On December 31, 2018, the shareholder's equity section of Q Corp. was comprised of $15,000 in common shares and retained earnings with the amount of $450,000. Q Corp. reported net Income and paid dividends of $120,000 and $20,000 respectively for the year ended December 31, 2019.
There have been no goodwill impairment losses since acquisition.
On January 1, 2020, P Corp. sold 200 shares of its investment in Q Corp. for $125,000. On January 1, 2019, the investment account had a balance of $420,000. The acquisition differential was to be allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).
What is the amount of Goodwill that arose from P's investment in Q?

A) Nil
B) $6,000
C) $18,000
D) $36,000*[$465,000 - ($420,000/.80)] = $60,000 (undepleted AD)

Question 41

On January 1, 2017, Lime Inc. acquired 80,000 common shares of Stone Corp. for $900,000. On January 1, 2017 Stone's balance sheet showed the following shareholders' equity:
* Stone's preferred share dividends were one year in arrears on that date.
Stone's fair values approximated its book values on that date with the following exceptions:
 Inventory had a fair value that was $30,000 higher than its book value. Plant and equipment had a fair value $10,000 lower than their book value.
 The plant and equipment had an estimated remaining useful life of 10 years from the date of acquisition.
The financial statements of Lime Inc. and its subsidiary Stone Corp. on December 31, 2020 are shown below:
Other Information:
 Intercompany sales of inventory for 2020 were as follows:
 Unrealized intercompany profits in inventory for 2020 were as follows:
 On January 1, 2018, Stone sold equipment to Lime for $30,000. The equipment had a carrying value of $27,000 on that date and an estimated useful life of 3 years. The inventory on hand at the start of 2020 was sold to outsiders during the year.
 Both companies are subject to a tax rate of 40%. There were no dividends in arrears on December 31, 2019. Lime uses the cost method to account for its investment in Stone.
a) Prepare a schedule of intercompany profits as at December 31, 2020 for both companies.
b) Compute the amount of deferred taxes that should appear on the December 31, 2020 Consolidated Balance Sheet.

Question 42

Which of the following statements pertaining to preferred shares is correct?

A) If the preferred shares are non-cumulative, the current year's net income would be allocated to the preferred shares whether or not preferred dividends are declared.
B) If the preferred shares are non-cumulative, only the current year's net income would be allocated to preferred shares if preferred dividends are declared, since dividends are never in arrears with non-cumulative preferred shares.
C) If the preferred shares are cumulative, the current year's net income would be allocated to the shares, only if dividends are declared in the year.
D) There can never be any dividends in arrears when preferred shares are cumulative.

Question 43

The trial balances of Ash Inc. and its subsidiary Cinder Corp. on December 31, 2020 are shown below:
Other Information:
Ash acquired Cinder in three stages:
Cinder was incorporated on January 1, 2015. On that date, Cinder issued 100,000 voting shares.
Any difference between the cost and book value is attributable entirely to trademarks, which are to be amortized over 5 years. The company has neither issued nor retired shares since the date of its incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1, 2019. These assets had a 10 year remaining life.
Intercompany sales of inventory during 2020 amounted to $250,000. Unrealized inventory profits for each company are shown below for 2020. The amounts indicate the amount of profit in each company's inventory.
All inventories on hand at the start of 2020 were sold to outsiders during the year. The net incomes of both companies are evenly earned throughout the year. Both companies are subject to an effective corporate tax rate of 20%.
Compute the Consolidated Cost of Goods Sold for 2020.

Question 44

Beta Corp. owns 80% of Gamma Corp. The Consolidated Financial Statements of Beta Corp. for 2019 and 2020 are shown below:
Beta Corp.
Consolidated Balance Sheet
Beta Corp.
Consolidated Income Statement,
For the year ended December 31, 2020
Other Information:
Beta purchased its interest in Gamma on January 1, 2016 for $360,000 when the company's net assets were valued at $300,000. The acquisition differential was allocated equally between goodwill and equipment, which was estimated to have a remaining useful life of ten years from the acquisition date.
Gamma reported a net income of $75,000 and paid dividends of $5,000 during 2020.
Beta issued $300,000 in bonds during the year. Beta reported an equity method net Income of $300,000 and paid $70,000 in dividends to its shareholders.
Required:
Prepare a Consolidated Statement of Cash Flows for Beta Corp. for 2020.
Beta Corp.
Consolidated Statement of Cash Flows

Question 45

If the shareholders' equity allocated to the subsidiary's preference shares amounts to $240,000 and the parent company acquires 60% of the subsidiary's preference shares at a cost of $150,000, how much will the non-controlling interest in the preferred shares amount to after the purchase by the parent?

A) $90,000
B) $96,000
C) $120,000
D) $240,000

Question 46

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2020. The balance sheets of both companies on that date are shown below (after Whine acquired the shares): $\begin{array}{|l|r|r|}\hline & \text { WHINE } & \text { DINE } \\\hline \text { Cash } & \$ 250,000 & \$ 200,000 \\\hline \text { Accounts Receivable } & \$ 450,000 & \$ 300,000 \\\hline \text { Inventory } & \$ 500,000 & \$ 100,000 \\\hline \text { Investment in Dine Inc. } & \$ 500,000 & \\\hline \text { Land } & \$ 140,000 & \\\hline \text { Equipment (net) } & \$ 460,000 & \$ 200,000 \\\hline \text { Total Assets } & \mathbf{\$ 2 . 3 0 0 , 0 0 0} & \mathbf{\$ 8 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 900,000 & \$ 200,000 \\\hline \text { Bonds Payable } & \$ 500,000 & \$ 100,000 \\\hline \text { Common Shares } & \$ 500,000 & \$ 200,000 \\\hline \text { Retained Earnings } & \$ 400,000 & \$ 300,000 \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{2 , 3 0 0 , 0 0 0} & \$ \mathbf{8 0 0 , 0 0 0} \\\hline \end{array}$ Also on December 31, 2020 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition.
Whine Inc. uses the equity method to account for its investment in Dine Inc.
There were no unrealized intercompany profits on December 31, 2020.
The amount of goodwill appearing on the December 31, 2020 consolidated balance sheet would be:

A) nil.
B) $10,000.
C) $20,000.
D) $30,000.

Question 47

The trial balances of Ash Inc. and its subsidiary Cinder Corp. on December 31, 2020 are shown below:
Other Information:
Ash acquired Cinder in three stages:
Cinder was incorporated on January 1, 2015. On that date, Cinder issued 100,000 voting shares.
Any difference between the cost and book value is attributable entirely to trademarks, which are to be amortized over 5 years. The company has neither issued nor retired shares since the date of its incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1, 2019. These assets had a 10 year remaining life.
Intercompany sales of inventory during 2020 amounted to $250,000. Unrealized inventory profits for each company are shown below for 2020. The amounts indicate the amount of profit in each company's inventory.
All inventories on hand at the start of 2020 were sold to outsiders during the year. The net incomes of both companies are evenly earned throughout the year. Both companies are subject to an effective corporate tax rate of 20%.
What amount will be shown in the consolidated balance sheet of Ash as at December 31, 2020, for trademarks?

Question 48

What is the correct method of treating an acquisition differential arising from a Preferred Share Issue?

A) It should be treated as an adjustment to goodwill.
B) It should be pro-rated across the subsidiary's identifiable assets and liabilities.
C) It should be expensed in the current year.
D) It should be adjusted to a contributed surplus or retained earnings account.

Question 49

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2020. The balance sheets of both companies on that date are shown below (after Whine acquired the shares): $\begin{array}{|l|r|r|}\hline & \text { WHINE } & \text { DINE } \\\hline \text { Cash } & \$ 250,000 & \$ 200,000 \\\hline \text { Accounts Receivable } & \$ 450,000 & \$ 300,000 \\\hline \text { Inventory } & \$ 500,000 & \$ 100,000 \\\hline \text { Investment in Dine Inc. } & \$ 500,000 & \\\hline \text { Land } & \$ 140,000 & \\\hline \text { Equipment (net) } & \$ 460,000 & \$ 200,000 \\\hline \text { Total Assets } & \mathbf{\$ 2 . 3 0 0 , 0 0 0} & \mathbf{\$ 8 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 900,000 & \$ 200,000 \\\hline \text { Bonds Payable } & \$ 500,000 & \$ 100,000 \\\hline \text { Common Shares } & \$ 500,000 & \$ 200,000 \\\hline \text { Retained Earnings } & \$ 400,000 & \$ 300,000 \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{2 , 3 0 0 , 0 0 0} & \$ \mathbf{8 0 0 , 0 0 0} \\\hline \end{array}$ Also on December 31, 2020 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition.
Whine Inc. uses the equity method to account for its investment in Dine Inc.
There were no unrealized intercompany profits on December 31, 2020.
The amount of common shares appearing on the December 31, 2020 consolidated balance sheet would be:

A) $500,000.
B) $660,000.
C) $770,000.
D) $860,000.

Question 50

The following information was derived from the 2020consolidated financial statements of X Inc., which owns 80% of Y Inc. as well as 40% of Z Inc.:
The cash balance at the start of 2020 was $200,000.
Required:
Prepare the consolidated statement of cash flows for Lime Inc for the year ended December 31, 2020.
X Inc.
Consolidated Statement of Cash Flows

Question 51

If the shareholders' equity allocated to the subsidiary's preference shares amounts to $240,000 and the parent company acquires 60% of the subsidiary's preference shares at a cost of $150,000, what effect will the transaction have on consolidated shareholders' equity?

A) Non-controlling interest will decrease by $144,000 and retained earnings will decrease by $6,000.
B) Non-controlling interest will decrease by $144,000 and contributed surplus will increase by $6,000.
C) Non-controlling interest will increase by $144,000 and retained earnings will increase by $6,000.
D) There will be no change in consolidated shareholders' equity as a result of this transaction.

Question 52

On January 1, 2017, Lime Inc. acquired 80,000 common shares of Stone Corp. for $900,000. On January 1, 2017 Stone's balance sheet showed the following shareholders' equity:
* Stone's preferred share dividends were one year in arrears on that date.
Stone's fair values approximated its book values on that date with the following exceptions:
 Inventory had a fair value that was $30,000 higher than its book value. Plant and equipment had a fair value $10,000 lower than their book value.
 The plant and equipment had an estimated remaining useful life of 10 years from the date of acquisition.
The financial statements of Lime Inc. and its subsidiary Stone Corp. on December 31, 2020 are shown below:
Other Information:
 Intercompany sales of inventory for 2020 were as follows:
 Unrealized intercompany profits in inventory for 2020 were as follows:
 On January 1, 2018, Stone sold equipment to Lime for $30,000. The equipment had a carrying value of $27,000 on that date and an estimated useful life of 3 years. The inventory on hand at the start of 2020 was sold to outsiders during the year.
 Both companies are subject to a tax rate of 40%. There were no dividends in arrears on December 31, 2019. Lime uses the cost method to account for its investment in Stone.
Prepare Lime's December 31, 2020 Consolidated Balance Sheet.
Lime Inc.
Consolidated Balance Sheet
As At December 31, 2020

Question 53

The trial balances of Ash Inc. and its subsidiary Cinder Corp. on December 31, 2020 are shown below:
Other Information:
Ash acquired Cinder in three stages:
Cinder was incorporated on January 1, 2015. On that date, Cinder issued 100,000 voting shares.
Any difference between the cost and book value is attributable entirely to trademarks, which are to be amortized over 5 years. The company has neither issued nor retired shares since the date of its incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1, 2019. These assets had a 10 year remaining life.
Intercompany sales of inventory during 2020 amounted to $250,000. Unrealized inventory profits for each company are shown below for 2020. The amounts indicate the amount of profit in each company's inventory.
All inventories on hand at the start of 2020 were sold to outsiders during the year. The net incomes of both companies are evenly earned throughout the year. Both companies are subject to an effective corporate tax rate of 20%.
Compute consolidated inventory for Ash as at December 31, 2020.

Question 54

On January 1, 2017, Lime Inc. acquired 80,000 common shares of Stone Corp. for $900,000. On January 1, 2017 Stone's balance sheet showed the following shareholders' equity:
* Stone's preferred share dividends were one year in arrears on that date.
Stone's fair values approximated its book values on that date with the following exceptions:
 Inventory had a fair value that was $30,000 higher than its book value. Plant and equipment had a fair value $10,000 lower than their book value.
 The plant and equipment had an estimated remaining useful life of 10 years from the date of acquisition.
The financial statements of Lime Inc. and its subsidiary Stone Corp. on December 31, 2020 are shown below:
Other Information:
 Intercompany sales of inventory for 2020 were as follows:
 Unrealized intercompany profits in inventory for 2020 were as follows:
 On January 1, 2018, Stone sold equipment to Lime for $30,000. The equipment had a carrying value of $27,000 on that date and an estimated useful life of 3 years. The inventory on hand at the start of 2020 was sold to outsiders during the year.
 Both companies are subject to a tax rate of 40%. There were no dividends in arrears on December 31, 2019. Lime uses the cost method to account for its investment in Stone.
Compute the Consolidated Net Income for 2020 and show its allocation between the controlling and non-controlling interests. Do not prepare an Income Statement.

Question 55

On January 1, 2017, Lime Inc. acquired 80,000 common shares of Stone Corp. for $900,000. On January 1, 2017 Stone's balance sheet showed the following shareholders' equity:
* Stone's preferred share dividends were one year in arrears on that date.
Stone's fair values approximated its book values on that date with the following exceptions:
 Inventory had a fair value that was $30,000 higher than its book value. Plant and equipment had a fair value $10,000 lower than their book value.
 The plant and equipment had an estimated remaining useful life of 10 years from the date of acquisition.
The financial statements of Lime Inc. and its subsidiary Stone Corp. on December 31, 2020 are shown below:
Other Information:
 Intercompany sales of inventory for 2020 were as follows:
 Unrealized intercompany profits in inventory for 2020 were as follows:
 On January 1, 2018, Stone sold equipment to Lime for $30,000. The equipment had a carrying value of $27,000 on that date and an estimated useful life of 3 years. The inventory on hand at the start of 2020 was sold to outsiders during the year.
 Both companies are subject to a tax rate of 40%. There were no dividends in arrears on December 31, 2019. Lime uses the cost method to account for its investment in Stone.
Compute the Goodwill on the date of the acquisition.

Question 56

Which of the following is not included in the amount of shareholders' equity allocated to the holders of the preference shares on the consolidated balance sheet?

A) The stated or par value of the preference shares.
B) Cumulative dividends in arrears on the preference shares.
C) Contributed surplus arising from the issue of preference shares.
D) Redemption premium payable on redemption of preference shares.

Question 57

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2020. The balance sheets of both companies on that date are shown below (after Whine acquired the shares): $\begin{array}{|l|r|r|}\hline & \text { WHINE } & \text { DINE } \\\hline \text { Cash } & \$ 250,000 & \$ 200,000 \\\hline \text { Accounts Receivable } & \$ 450,000 & \$ 300,000 \\\hline \text { Inventory } & \$ 500,000 & \$ 100,000 \\\hline \text { Investment in Dine Inc. } & \$ 500,000 & \\\hline \text { Land } & \$ 140,000 & \\\hline \text { Equipment (net) } & \$ 460,000 & \$ 200,000 \\\hline \text { Total Assets } & \mathbf{\$ 2 . 3 0 0 , 0 0 0} & \mathbf{\$ 8 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 900,000 & \$ 200,000 \\\hline \text { Bonds Payable } & \$ 500,000 & \$ 100,000 \\\hline \text { Common Shares } & \$ 500,000 & \$ 200,000 \\\hline \text { Retained Earnings } & \$ 400,000 & \$ 300,000 \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{2 , 3 0 0 , 0 0 0} & \$ \mathbf{8 0 0 , 0 0 0} \\\hline \end{array}$ Also on December 31, 2020 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share.
The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition.
Whine Inc. uses the equity method to account for its investment in Dine Inc.
There were no unrealized intercompany profits on December 31, 2020.
The amount appearing under equipment on the December 31, 2020 consolidated balance sheet would be:

A) $690,000.
B) $710,000.
C) $772,500.
D) $785,000.

Question 58

On January 1, 2017, Lime Inc. acquired 80,000 common shares of Stone Corp. for $900,000. On January 1, 2017 Stone's balance sheet showed the following shareholders' equity:
* Stone's preferred share dividends were one year in arrears on that date.
Stone's fair values approximated its book values on that date with the following exceptions:
 Inventory had a fair value that was $30,000 higher than its book value. Plant and equipment had a fair value $10,000 lower than their book value.
 The plant and equipment had an estimated remaining useful life of 10 years from the date of acquisition.
The financial statements of Lime Inc. and its subsidiary Stone Corp. on December 31, 2020 are shown below:
Other Information:
 Intercompany sales of inventory for 2020 were as follows:
 Unrealized intercompany profits in inventory for 2020 were as follows:
 On January 1, 2018, Stone sold equipment to Lime for $30,000. The equipment had a carrying value of $27,000 on that date and an estimated useful life of 3 years. The inventory on hand at the start of 2020 was sold to outsiders during the year.
 Both companies are subject to a tax rate of 40%. There were no dividends in arrears on December 31, 2019. Lime uses the cost method to account for its investment in Stone.
Prepare a calculation of non-controlling interest as at December 31, 2020.
Total Non-Controlling Interest $481,240 ($150,000 + $331,240)

Question 59

If the shareholders' equity allocated to the subsidiary's preference shares amounts to $240,000 and the parent company acquires 60% of the subsidiary's preference shares at a cost of $150,000, how much will the amount of cash on the consolidated balance sheet change as a result of this transaction?

A) It will not change.
B) It will increase by $150,000.
C) It will decrease by $144,000.
D) It will decrease by $150,000.

Question 60

On January 1, 2017, Lime Inc. acquired 80,000 common shares of Stone Corp. for $900,000. On January 1, 2017 Stone's balance sheet showed the following shareholders' equity:
* Stone's preferred share dividends were one year in arrears on that date.
Stone's fair values approximated its book values on that date with the following exceptions:
 Inventory had a fair value that was $30,000 higher than its book value. Plant and equipment had a fair value $10,000 lower than their book value.
 The plant and equipment had an estimated remaining useful life of 10 years from the date of acquisition.
The financial statements of Lime Inc. and its subsidiary Stone Corp. on December 31, 2020 are shown below:
Other Information:
 Intercompany sales of inventory for 2020 were as follows:
 Unrealized intercompany profits in inventory for 2020 were as follows:
 On January 1, 2018, Stone sold equipment to Lime for $30,000. The equipment had a carrying value of $27,000 on that date and an estimated useful life of 3 years. The inventory on hand at the start of 2020 was sold to outsiders during the year.
 Both companies are subject to a tax rate of 40%. There were no dividends in arrears on December 31, 2019. Lime uses the cost method to account for its investment in Stone.
Prepare a calculation of Consolidated Retained Earnings at as December 31, 2020.
Calculation of Consolidated Retained Earnings:

Question 61

On January 1, 2019, Philcorp acquired 8,000 of the outstanding 10,000 shares of Anderco by issuing its own shares with a market value of $400,000.
On June 30, 2020, Philcorp sold 3,500 shares for cash consideration of $60 per share on open market.
Immediately before the sale, the shareholders' equity of Anderco amounted to $500,000 and the unamortized purchase discrepancy was $65,000. Philcorp uses the equity method to record its investment in Anderco.
Required:
Prepare the journal entry(ies) Philcorp would make to record the gain or loss resulting from the disposition of the shares?

Question 62

Parrot Company purchased 75% of the outstanding common shares and 50% of the outstanding preference shares of Saltines Inc. on January 1, 2020, on which date the balance sheet and fair values of Saltines' assets and liabilities were as follows:
Saltines Inc.
Balance Sheet
as at December 31, 2019

Question 63

Parrot Company purchased 75% of the outstanding common shares and 50% of the outstanding preference shares of Saltines Inc. on January 1, 2020, on which date the balance sheet and fair values of Saltines' assets and liabilities were as follows:
Saltines Inc.
Balance Sheet
as at December 31, 2019
Parrot paid $460,000 for the common shares and $105,000 for the preference shares. The contributed surplus arose from the issue of the preferred shares at a price higher than their stated value. The preferred shares paid cumulative dividends of 5% of their stated value but dividends for 2018 and 2019 were unpaid. The shares were redeemable, at the option of the issuer, at a premium of 8%.
The capital assets of Saltines had a remaining useful life of ten years at January 1, 2010. Any unallocated acquisition differential would be treated as goodwill, which is assessed annually for impairment. Parrot accounts for its interest in Saltines using the cost method and accounts for the non-controlling interest in its consolidated financial statements using the fair value enterprise method.
Parrot's net income for 2020 was $300,000 and Parrot paid dividends of $150,000 on December 31, 2020. Saltines' net income for 2020 was $120,000 before a loss from discontinued operations of $60,000 (net of tax). Saltines paid dividends of $75,000 in 2020. (Parrot included all dividends received in its income for 2020.)
Calculate the amount of the non-controlling interest on the consolidated balance sheet of Parrot and its subsidiary as at December 31, 2020.

Question 64

Parrot Company purchased 75% of the outstanding common shares and 50% of the outstanding preference shares of Saltines Inc. on January 1, 2020, on which date the balance sheet and fair values of Saltines' assets and liabilities were as follows:
Saltines Inc.
Balance Sheet
as at December 31, 2019
Parrot paid $460,000 for the common shares and $105,000 for the preference shares. The contributed surplus arose from the issue of the preferred shares at a price higher than their stated value. The preferred shares paid cumulative dividends of 5% of their stated value but dividends for 2018 and 2019 were unpaid. The shares were redeemable, at the option of the issuer, at a premium of 8%.
The capital assets of Saltines had a remaining useful life of ten years at January 1, 2010. Any unallocated acquisition differential would be treated as goodwill, which is assessed annually for impairment. Parrot accounts for its interest in Saltines using the cost method and accounts for the non-controlling interest in its consolidated financial statements using the fair value enterprise method.
Parrot's net income for 2020 was $300,000 and Parrot paid dividends of $150,000 on December 31, 2020. Saltines' net income for 2020 was $120,000 before a loss from discontinued operations of $60,000 (net of tax). Saltines paid dividends of $75,000 in 2020. (Parrot included all dividends received in its income for 2020.)
Calculate the consolidated net income of Parrot and its subsidiary as at December 31, 2020.