Deck 5: Consolidation Subsequent to Acquisition Date

Question 1

Intangible assets with definite useful lives should be amortized:

A) over their useful lives.
B) over the time periods provided under IAS 36 Impairment of Assets which prescribes amortization periods for different classes of assets.
C) under the applicable capital cost allowance rates provided by the Canada Revenue Agency.
D) over two years.

Answer 1

A

Question 2

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: $\begin{array}{|l|r|r|r|}\hline & \text { Errant Inc. } & \text { Grub Inc. } & \text { Grub Inc. } \\\hline & \text { (carrying value) } & \text { (caryying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 120,000 & \$ 76,000 & \$ 76,000 \\\hline \text { Accounts Receivable } & \$ 80,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 34,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 400,000 & \$ 80,000 & \$ 70,000 \\\hline \text { Trademark } & & \$ 70,000 & \$ 84,000 \\\hline \text { Total Assets } & \$ 660000 & \$ 300,000 & \\\hline \text { Current Liabilities } & \$ 180,000 & \$ 80,000 & \$ 80,000 \\\hline \text { Bonds Payable } & \$ 320,000 & \$ 60,000 & \$ 64,000 \\\hline \text { Common Shares } & \$ 90,000 & \$ 100,000 & \\\hline \text { Retained Earnings } & \$ 70,000 & \$ 60,000 \\\hline \text { Total Liabilities and Equity } & \$ 660,000 & \$ 300,000 \\\hline\end{array}$ The net incomes for Errant and Grub for the year ended December 31, 2019 were $160,000 and $90,000 respectively. Grub paid $9,000 in dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2019 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year.
Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.
Assume that Errant Inc. uses the equity method unless stated otherwise.
How much Goodwill will be carried on Grub's balance sheet on December 31, 2019?

A) Nil
B) $(24,000)
C) $20,000
D) $24,000

Answer 2

Nil

Question 3

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: $\begin{array}{|l|r|r|r|}\hline & \text { Errant Inc. } & \text { Grub Inc. } & \text { Grub Inc. } \\\hline & \text { (carrying value) } & \text { (caryying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 120,000 & \$ 76,000 & \$ 76,000 \\\hline \text { Accounts Receivable } & \$ 80,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 34,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 400,000 & \$ 80,000 & \$ 70,000 \\\hline \text { Trademark } & & \$ 70,000 & \$ 84,000 \\\hline \text { Total Assets } & \$ 660000 & \$ 300,000 & \\\hline \text { Current Liabilities } & \$ 180,000 & \$ 80,000 & \$ 80,000 \\\hline \text { Bonds Payable } & \$ 320,000 & \$ 60,000 & \$ 64,000 \\\hline \text { Common Shares } & \$ 90,000 & \$ 100,000 & \\\hline \text { Retained Earnings } & \$ 70,000 & \$ 60,000 \\\hline \text { Total Liabilities and Equity } & \$ 660,000 & \$ 300,000 \\\hline\end{array}$ The net incomes for Errant and Grub for the year ended December 31, 2019 were $160,000 and $90,000 respectively. Grub paid $9,000 in dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2019 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year.
Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.
If Errant used the equity method to account for its investment in Grub and had net income of $160,000 from its own operations (before making any entries to reflect its investment in Grub) and paid no dividends in 2019, what amount of consolidated retained earnings would appear on Errant's consolidated balance sheet as at December 31, 2019?

A) $60,000.
B) $130,000.
C) $160,000.
D) $300,000.

Answer 3

$300,000.

Question 4

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: $\begin{array}{|l|r|r|r|}\hline & \text { Errant Inc. } & \text { Grub Inc. } & \text { Grub Inc. } \\\hline & \text { (carrying value) } & \text { (caryying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 120,000 & \$ 76,000 & \$ 76,000 \\\hline \text { Accounts Receivable } & \$ 80,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 34,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 400,000 & \$ 80,000 & \$ 70,000 \\\hline \text { Trademark } & & \$ 70,000 & \$ 84,000 \\\hline \text { Total Assets } & \$ 660000 & \$ 300,000 & \\\hline \text { Current Liabilities } & \$ 180,000 & \$ 80,000 & \$ 80,000 \\\hline \text { Bonds Payable } & \$ 320,000 & \$ 60,000 & \$ 64,000 \\\hline \text { Common Shares } & \$ 90,000 & \$ 100,000 & \\\hline \text { Retained Earnings } & \$ 70,000 & \$ 60,000 \\\hline \text { Total Liabilities and Equity } & \$ 660,000 & \$ 300,000 \\\hline\end{array}$ The net incomes for Errant and Grub for the year ended December 31, 2019 were $160,000 and $90,000 respectively. Grub paid $9,000 in dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2019 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year.
Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.
If Errant used the equity method to account for its investment in Grub and had net income of $160,000 from its own operations (before making any entries to reflect its investment in Grub), what consolidated net income would Errant report in its consolidated income statement for the year ended December 31, 2019?

A) $90,000
B) $160,000
C) $230,000
D) $250,000

Question 5

An impairment loss can be reversed when:

A) there is no indication that the impairment loss no longer exists or has been reduced and there has not been a change in the estimates used to determine the assets recoverable amount.
B) with the exception of goodwill, all intangible assets carrying values exceed their fair market values.
C) the intangible assets carrying values exceed their undiscounted future cash flows.
D) with the exception of goodwill, the recoverable amount is determined and compared to the carrying amount. If the recoverable amount is greater than the carrying amount then the impairment loss previously recorded is reversed.

Question 6

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|l|r|r|r|}\hline & \text { Errant Inc. } & \text { Grub Inc. } & \text { Grub Inc. } \\\hline & \text { (carrying value) } & \text { (caryying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 120,000 & \$ 76,000 & \$ 76,000 \\\hline \text { Accounts Receivable } & \$ 80,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 34,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 400,000 & \$ 80,000 & \$ 70,000 \\\hline \text { Trademark } & & \$ 70,000 & \$ 84,000 \\\hline \text { Total Assets } & \$ 660000 & \$ 300,000 & \\\hline \text { Current Liabilities } & \$ 180,000 & \$ 80,000 & \$ 80,000 \\\hline \text { Bonds Payable } & \$ 320,000 & \$ 60,000 & \$ 64,000 \\\hline \text { Common Shares } & \$ 90,000 & \$ 100,000 & \\\hline \text { Retained Earnings } & \$ 70,000 & \$ 60,000 \\\hline \text { Total Liabilities and Equity } & \$ 660,000 & \$ 300,000 \\\hline\end{array}$ The net incomes for Errant and Grub for the year ended December 31, 2019 were $160,000 and $90,000 respectively. Grub paid $9,000 in dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2019 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year.
Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.
Assume that Errant Inc. uses the equity method unless stated otherwise.
What would be Errant's journal entry to record Grub's net income for 2019?

A)
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Investrnent in Grub } & \$ 81,000 & \$ 81,000 \\\hline \text { Equity method income } & & \\\hline\end{array}$$
B)
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Equity method income } & \$ 90,000 & \\\hline \text { Investrnent in Grub } & & \$ 90,000\\\hline\end{array}$$
C)
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Investrnent in Grub } & \$ 90,000 & \\\hline \text { Equity method income } & &\$ 90,000 \\\hline\end{array}$$
D) No entry is requireD.Under the equity method, the subsidiary's net income is recorded as an increase to the investment asset account and as revenue in the income statement.

Question 7

Under the Equity Method, which of the following statements is TRUE?

A) The parent's investment in the subsidiary is recorded at cost, and only changed thereafter if there has been a permanent impairment in the value of the investment.
B) The parent records its pro rata share of the subsidiary's post-acquisition income as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
C) The parent records its pro rata share of the subsidiary's cumulative earnings as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
D) The parent's investment in the subsidiary is recorded at cost and reduced by any excess dividends received from the subsidiary.

Question 8

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below:
The net incomes for Errant and Grub for the year ended December 31, 2019 were $160,000 and $90,000 respectively. Grub paid $9,000 in dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2019 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year.
Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.
Assume that Errant Inc. uses the equity method unless stated otherwise.
What would be the journal entry to record the dividends received by Errant during the year?
A.

B.

C.

D.

Question 9

Consolidated Net Income would be:

A) higher if the parent chooses to use Equity Method rather than the Cost Method.
B) higher if the parent chooses to use the Equity Method rather than the Cost Method, provided that the subsidiary showed a profit.
C) lower if the parent chooses to use Equity Method rather than the Cost Method.
D) the same under both the Cost and Equity Methods.

Question 10

Consolidated retained earnings include:

A) consolidated net income less any dividends declared by either the parent or the subsidiary.
B) consolidated net income less any dividends declared by the parent only.
C) the parent's net income plus its share of the subsidiary's income less any dividends declared by either the parent or the subsidiary.
D) the parent's share of consolidated net income less any dividends declared by the parent.

Question 11

Testing intangible assets with indefinite useful lives for impairment:

A) occurs every year.
B) occurs when only there has been an indication of an impairment in the value of the asset such as a reduction in cash flow generation, idle assets, etc.
C) never occurs because the asset has an indefinite useful life.
D) occurs whenever required by the company's auditors.

Question 12

Under the Cost Method, which of the following statements is TRUE?

A) The parent's investment in the subsidiary is recorded at cost, and only changed thereafter if there has been a permanent impairment in the value of the investment.
B) The parent records its pro rata share of the subsidiary's post-acquisition income as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
C) The parent records its pro rata share of the subsidiary's cumulative earnings as an increase to the investment account and reduces the investment account with its share of the dividends declared by the subsidiary.
D) The parent's investment in the subsidiary is recorded at cost and reduced by any excess dividends received from the subsidiary.

Question 13

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: $\begin{array}{|l|r|r|r|}\hline & \text { Errant Inc. } & \text { Grub Inc. } & \text { Grub Inc. } \\\hline & \text { (carrying value) } & \text { (caryying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 120,000 & \$ 76,000 & \$ 76,000 \\\hline \text { Accounts Receivable } & \$ 80,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 34,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 400,000 & \$ 80,000 & \$ 70,000 \\\hline \text { Trademark } & & \$ 70,000 & \$ 84,000 \\\hline \text { Total Assets } & \$ 660000 & \$ 300,000 & \\\hline \text { Current Liabilities } & \$ 180,000 & \$ 80,000 & \$ 80,000 \\\hline \text { Bonds Payable } & \$ 320,000 & \$ 60,000 & \$ 64,000 \\\hline \text { Common Shares } & \$ 90,000 & \$ 100,000 & \\\hline \text { Retained Earnings } & \$ 70,000 & \$ 60,000 \\\hline \text { Total Liabilities and Equity } & \$ 660,000 & \$ 300,000 \\\hline\end{array}$ The net incomes for Errant and Grub for the year ended December 31, 2019 were $160,000 and $90,000 respectively. Grub paid $9,000 in dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2019 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year.
Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.
Assume that Errant Inc. uses the equity method unless stated otherwise.
The amount of Retained Earnings appearing on the consolidated balance sheet as at January 1, 2019 would be:

A) $60,000.
B) $70,000.
C) $130,000.
D) $160,000.

Question 14

Which of the following statements best describes the accounting treatment of Intangible Assets with indefinite lives?

A) All intangible assets are written down when their carrying values exceed their fair market values.
B) With the exception of Goodwill, all intangible assets are written down when their carrying values exceed their fair market values.
C) All intangible assets are written down when their carrying values exceed their undiscounted future cash flows.
D) The recoverable amount is determined and compared to the carrying amount. If the recoverable amount is greater than the carrying amount than no impairment exists; otherwise, there is an impairment and the asset is written down to its recoverable amount.

Question 15

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below:
Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.
Assuming that Errant uses the cost method, what would be the journal entry to record the dividends received by Errant during the year?
A.

B.

C.

D.

Question 16

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below: $\begin{array}{|l|r|r|r|}\hline & \text { Errant Inc. } & \text { Grub Inc. } & \text { Grub Inc. } \\\hline & \text { (carrying value) } & \text { (caryying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 120,000 & \$ 76,000 & \$ 76,000 \\\hline \text { Accounts Receivable } & \$ 80,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 34,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 400,000 & \$ 80,000 & \$ 70,000 \\\hline \text { Trademark } & & \$ 70,000 & \$ 84,000 \\\hline \text { Total Assets } & \$ 660000 & \$ 300,000 & \\\hline \text { Current Liabilities } & \$ 180,000 & \$ 80,000 & \$ 80,000 \\\hline \text { Bonds Payable } & \$ 320,000 & \$ 60,000 & \$ 64,000 \\\hline \text { Common Shares } & \$ 90,000 & \$ 100,000 & \\\hline \text { Retained Earnings } & \$ 70,000 & \$ 60,000 \\\hline \text { Total Liabilities and Equity } & \$ 660,000 & \$ 300,000 \\\hline\end{array}$ The net incomes for Errant and Grub for the year ended December 31, 2019 were $160,000 and $90,000 respectively. Grub paid $9,000 in dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2019 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year.
Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.
Assume that Errant Inc. uses the equity method unless stated otherwise.
The amount of goodwill arising from this business combination is:

A) Nil.
B) $(24,000).
C) $12,000.
D) $24,000.

Question 17

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|l|r|r|r|}\hline & \text { Errant Inc. } & \text { Grub Inc. } & \text { Grub Inc. } \\\hline & \text { (carrying value) } & \text { (caryying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 120,000 & \$ 76,000 & \$ 76,000 \\\hline \text { Accounts Receivable } & \$ 80,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 34,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 400,000 & \$ 80,000 & \$ 70,000 \\\hline \text { Trademark } & & \$ 70,000 & \$ 84,000 \\\hline \text { Total Assets } & \$ 660000 & \$ 300,000 & \\\hline \text { Current Liabilities } & \$ 180,000 & \$ 80,000 & \$ 80,000 \\\hline \text { Bonds Payable } & \$ 320,000 & \$ 60,000 & \$ 64,000 \\\hline \text { Common Shares } & \$ 90,000 & \$ 100,000 & \\\hline \text { Retained Earnings } & \$ 70,000 & \$ 60,000 \\\hline \text { Total Liabilities and Equity } & \$ 660,000 & \$ 300,000 \\\hline\end{array}$ The net incomes for Errant and Grub for the year ended December 31, 2019 were $160,000 and $90,000 respectively. Grub paid $9,000 in dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2019 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year.
Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.
Assume that Errant Inc. uses the equity method unless stated otherwise.
What would be Errant's journal entry to record the amortization of the acquisition differential (excluding any goodwill impairment) on December 31, 2019?
A.
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Equity method income } & \$ 18,800 & \\\hline \text { Investrnent in Grub } & & \$ 18,800 \\\hline\end{array}$$
B.
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Equity method income } & \$ 16,000 & \\\hline \text { Investrnent in Grub } & & \$ 16,000 \\\hline\end{array}$$
C.
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Investrnent in Grub } & \$ 18,800 &\\\hline \text { Equity method income } & & \$ 18,800 \\\hline\end{array}$$

Question 18

Errant Inc. purchased 100% of the outstanding voting shares of Grub Inc. for $200,000 on January 1, 2019. On that date, Grub Inc. had common shares and retained earnings worth $100,000 and $60,000, respectively. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Grub's fair market values on the date of acquisition are disclosed below:
The net incomes for Errant and Grub for the year ended December 31, 2019 were $160,000 and $90,000 respectively. Grub paid $9,000 in dividends to Errant during the year. There were no other inter-company transactions during the year. Moreover, an impairment test conducted on December 31, 2019 revealed that the Goodwill should actually have a value of $20,000. Both companies use a FIFO system, and most of Grub's inventory on the date of acquisition was sold during the year. Errant did not declare any dividends during the year.
Assume that any difference between the fair values and book values of the equipment, trademark and bonds payable would all be amortized over 10 years.
Assume that Errant Inc. uses the equity method unless stated otherwise.
Which of the following journal entries would be required on December 31, 2019 to record the impairment of the goodwill?
A. No entry is required.
B.

C.

D.

Question 19

The rationale behind allocating goodwill across a subsidiary's various cash-generating units is:

A) that doing so will result in more accurate asset valuations.
B) that it is necessary to comply with IASB requirements.
C) that doing so would facilitate comparisons between operating segments.
D) that the cash-generating units will benefit from the synergies of the combination.

Question 20

Consolidated Net Income is equal to:

A) the sum of the net incomes of both the parent and its subsidiaries.
B) the sum of the net incomes of both the parent and its subsidiaries less any inter-company dividends.
C) the parent's net income excluding any income arising from its investment in the subsidiary.
D) the parent's net income excluding any income arising from its investment in the Subsidiary, plus the net income of the subsidiary less the amortization of the acquisition differential and the impairment of goodwill.

Question 21

If the parent company uses the equity method to record its investment in a subsidiary in its internal accounting records, which of the following statements is FALSE?

A) The parent's net income equals consolidated net income.
B) The parent's retained earnings will be equal to consolidated retained earnings.
C) Only the parent's share of the subsidiary's income, dividends and amortization of acquisition differential are recorded in the investor's records.
D) The parent's net income equals consolidated net income attributable to the shareholders of the parent.

Question 22

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000. Assuming that GNR Inc. uses the cost method, what effect would the above information have on GNR's investment in NMX account?

A) An increase of $10,000
B) An increase of $30,000
C) An increase of $40,000
D) No effect.

Question 23

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1, 2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30,2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The amount of depreciation expense appearing on Big Guy's June 30, 2020 consolidated income statement would be:

A) $113,400.
B) $113,720.
C) $115,000.
D) $116,280.

Question 24

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|l|r|r|r|} \hline& \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \text { (carrying value) } & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0} \mathbf{0 0 0} & \$ \mathbf{5 0 0 0 0 0} & \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { onds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{2 2 0 0 0 , 0 0 0} & \$ \mathbf{5 0 0 , 0 0 0} \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1, 2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30,2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The amount of goodwill arising from this business combination is:

A) nil.
B) $(40,000).
C) $50,000.
D) $64,000.

Question 25

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1,2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30, 2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The amount of non-controlling interest appearing on Big Guy's June 30, 2020 consolidated income statement would be:

A) nil.
B) $2,000.
C) $2,120.
D) $3,600.

Question 26

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1,2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30, 2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
Big Guy's consolidated retained earnings as at June 30, 2020 would be:

A) $1,169,040.
B) $1,486,400.
C) $1,500,000.
D) $1,508,000.

Question 27

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000. Assuming that GNR owned 80% of NMX instead of 100%, what would be the effect on GNR's investment in NMX account under the cost method?

A) An increase of $24,000
B) An increase of $30,000
C) An increase of $40,000
D) No effect

Question 28

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1,2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30, 2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
What amount of dividends would appear on Big Guy's consolidated statement of retained earnings as at June 30, 2020?

A) $2,000.
B) $20,000.
C) $21,600.
D) $22,000.

Question 29

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1,2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30, 2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The consolidated net income attributable to the shareholders of Big Guy appearing on Big Guy's consolidated income statement on June 30, 2020 would be:

A) $216,080.
B) $218,480.
C) $228,480.
D) $279,600.

Question 30

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000. Assuming that GNR owned 80% of NXR instead of 100%, what would be the effect on GNR's investment in NMX account under the Equity Method?

A) An increase of $24,000.
B) An increase of $30,000.
C) An increase of $40,000.
D) No effect.

Question 31

Which of the following adjustments (if any) to Retained Earnings is necessary for the preparation of the consolidated balance sheet?

A) Under both the Cost and Equity methods, the parent must record its share of its Subsidiary's income.
B) Under both the Cost and Equity methods, the parent must record its share of its Subsidiary's income less any dividends received from the subsidiary.
C) No adjustment is required under either the Cost or the Equity methods.
D) No adjustment is required if the parent has been using the Equity Method.

Question 32

Consolidated shareholders' equity:

A) does not include any non-controlling Interest.
B) is equal to the sum of the Shareholders' Equity Sections of the parent and the subsidiary.
C) is equal to that of the parent company under the Equity Method.
D) is higher under the Equity Method when the subsidiary does not declare dividends.

Question 33

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000. Assuming that GNR owned 80% of NXR instead of 100%, what would be the effect on GNR's investment in NMX account under the cost method if GNR received $9,000 in dividends from NMX?

A) An increase of $23,000
B) An increase of $1,000
C) No effect
D) A decrease of $1,000

Question 34

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1, 2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30,2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The amount of interest expense appearing on Big Guy's June 30, 2020 consolidated income statement would be:

A) $36,000.
B) $57,600.
C) $62,400.
D) $63,000.

Question 35

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1, 2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30,2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The amount of non-controlling interest on Big Guy's consolidated balance sheet on July 1, 2017 would be:

A) $0.
B) $88,000.
C) $90,000.
D) $270,000.

Question 36

If the parent company used the equity method to account for its investment and the subsidiary company showed a profit for the past year, the consolidation elimination entry required to remove a subsidiary's income from the parent's books prior to the preparation of consolidated financial statements would be:

A)
$\begin{array}{|l|r|r|} \hline& \text { Debit } & \text { Credit } \\\hline \text { Equity method income-Parent } & \$ \$ \$ & \\\hline \text { Retained Earnings - Parent } & & \$ \$ \$\\\hline\end{array}$
B)
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Equity method income-Parent } &\$ \$\$ \\\hline \text { Investrnent in Subsidiary } & &\$ \$\$ \\\hline\end{array}$$
C)
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Equity method income-Parent } &\$\$\$ \\\hline \text { Acquisition Differential } & &\$\$\$ \\\hline\end{array}$$

Question 37

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1, 2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30,2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The amount of other expenses appearing on Big Guy's June 30, 2020 consolidated income statement would be:

A) $11,600.
B) $12,000.
C) $13,000.
D) $13,400.

Question 38

Any excess of fair value over book value attributable to land on the date of acquisition is to be:

A) allocated to other identifiable assets.
B) capitalized and amortized.
C) charged to Retained Earnings on the date of acquisition.
D) taken into income when the Land is sold.

Question 39

GNR Inc. owns 100% of NMX Inc. During the year, NMX Inc. earned a net income of $40,000 and paid dividends of $10,000. Assuming that GNR Inc. uses the Equity Method, what effect would the above information have on GNR's investment in NMX account?

A) An increase of $10,000.
B) An increase of $30,000.
C) An increase of $40,000.
D) No effect.

Question 40

The consolidation elimination entry required to remove any dividends received from a subsidiary prior to the preparation of consolidated financial statements (assuming that the parent uses the cost method to record its investment in the subsidiary) would be:

A)
$\begin{array}{|l|r|r|}\hline & \text { Debit } & \text { Credit } \\\hline \text { Equity method income-Parent } & \$ \$ \$ & \\\hline \text { Retained Earnings-Parent } & & \$ \$\$ \\\hline\end{array}$
B)
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Dividend Income-Subsidiary } &\$\$\$ & \\\hline \text { Investrnent in Subsidiary } & &\$\$\$ \\\hline\end{array}$$
C)
$$\begin{array} { | l | r | r | } \hline & \text { Debit } & \text { Credit } \\\hline \text { Dividend Income-Parent } &\$\$\$& \\\hline \text { Dividends-Subsidiary } & &\$\$\$ \\\hline\end{array}$$

Question 41

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1,2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30, 2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The amount of Cash on Big Guy's consolidated balance sheet on June 30, 2020 would be:

A) $1,200,000.
B) $1,545,000.
C) $1,565,000.
D) $1,585,000.

Question 42

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1,2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30, 2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The amount of Current Liabilities appearing on Big Guy's consolidated balance sheet as at June 30, 2020 would be:

A) $350,000.
B) $630,000.
C) $662,000.
D) $682,000.

Question 43

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1,2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30, 2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The value of Common Shares appearing on Big Guy's consolidated balance sheet on June 30, 2020 would be:

A) $900,000.
B) $1,044,000.
C) $1,080,000.
D) $1,800,000.

Question 44

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1,2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30, 2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The amount of Accounts Receivable appearing on Big Guy's consolidated balance sheet as at June 30, 2020 would be:

A) $270,000.
B) $305,000.
C) $314,000.
D) $325,000.

Question 45

Selectron Inc. acquired 60% of Insor Inc. on January 1, 2019 for $180,000, when Insor's Common Shares and Retained Earnings were worth $60,000 and $180,000 respectively. Insor's fair values approximated their book values on that date. Selectron currently uses the Equity Method to account for its investment in Insor.
During 2019, investment income in the amount of $12,000 and dividends in the amount of $1,200 were recorded in Selectron's Investment in Insor account. During 2020, investment income in the amount of $24,000 and dividends in the amount of $2,400 were recorded in Selectron's Investment in Insor account. Insor declares dividends in the amount of 10% of its earnings.
Required:
a) Compute Insor's net income for 2019 and 2020.
b) Compute the amount of dividends declared by Insor in each year.
c) Compute the balance in the non-controlling interest account as at December 31, 2020.

Question 46

Par Inc. purchased 70% of the outstanding voting shares of Sub Inc. for $700000 on July 1, 2020. On that date, Sub Inc. had common shares and retained earnings worth $410,000 and $170,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Sub's bonds mature on July 1, 2025. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Par Inc. and Sub Inc. declared and paid $10,000 and $5,000 in dividends, respectively during the year.
Par Inc. uses the Fair Value Enterprise Method to value the non-controlling interest in Sub Inc. on the acquisition date.
The balance sheets of both companies, as well as Sub's fair values immediately following the acquisition are shown below:
The following are the financial statements for both companies for the fiscal year ended June 30, 2021:
Income Statements
Retained Earnings Statements
Balance Sheets
Both companies use a FIFO system, and Sub's entire inventory on the date of acquisition was sold during the following year. During 2020, Sub Inc. borrowed $10,000 in cash from Par Inc. interest free to finance its operations. The amount remains unpaid as of June 30, 2021. The Par uses the Equity Method to account for its investment in Sub Inc. Corp.
Prepare Par's statement of consolidated retained earnings for the year ended June 30, 2021.

Question 47

Linton Inc. purchased 75% of Marsh Inc. on January 1, 2019 for $1,000,000. Marsh's common shares and retained earnings were worth $400,000 each on that date. The acquisition differential was allocated as follows:
The balance was allocated to goodwill. The trademark had an estimated remaining useful life of 10 years from the date of acquisition. Marsh Inc. uses straight line amortization.
In 2019, Marsh's net income was $40,000. Marsh declared and paid $5,000 in dividends to shareholders on record as at December 31, 2019. In 2020, Marsh reported a net income of $8,000 and declared and paid $1,000 in dividends.
Required:
a) Prepare the equity method journal entries for Linton for 2019 and 2020.
b) Calculate the value of Marsh's trademark as at December 31, 2020.
c) Prepare a statement that shows the changes in Linton's non-controlling interest in 2020.

Question 48

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1,2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30, 2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The amount of non-controlling interest appearing on Big Guy's consolidated balance sheet as at June 30, 2020 would be:

A) $79,760.
B) $83,600.
C) $90,000.
D) $226,400.

Question 49

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1,2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30, 2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The net amount appearing on Big Guy's consolidated balance sheet for Equipment as at June 30, 2020 would be:

A) $872,000.
B) $878,600.
C) $881,800.
D) $885,000.

Question 50

Par Inc. purchased 70% of the outstanding voting shares of Sub Inc. for $700000 on July 1, 2020. On that date, Sub Inc. had common shares and retained earnings worth $410,000 and $170,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Sub's bonds mature on July 1, 2025. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Par Inc. and Sub Inc. declared and paid $10,000 and $5,000 in dividends, respectively during the year.
Par Inc. uses the Fair Value Enterprise Method to value the non-controlling interest in Sub Inc. on the acquisition date.
The balance sheets of both companies, as well as Sub's fair values immediately following the acquisition are shown below:
The following are the financial statements for both companies for the fiscal year ended June 30, 2021:
Income Statements
Retained Earnings Statements
Balance Sheets
Both companies use a FIFO system, and Sub's entire inventory on the date of acquisition was sold during the following year. During 2020, Sub Inc. borrowed $10,000 in cash from Par Inc. interest free to finance its operations. The amount remains unpaid as of June 30, 2021. The Par uses the Equity Method to account for its investment in Sub Inc. Corp.
Prepare a statement of changes in Non-Controlling Interest for the year ended June 30, 2021.

Question 51

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1,2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30, 2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The amount of bonds payable appearing on Big Guy's consolidated balance sheet on June 30, 2020 would be:

A) $309,000.
B) $317,800.
C) $318,000.
D) $330,000.

Question 52

Davis Inc. purchased a controlling interest in Martin Inc. on January 1, 2019, when Martin's common shares and retained earnings were carried at $180,000 and $60,000 respectively. On that date, Martin's book values approximated its fair values, with the exception of the company's inventories and a Patent held by Martin. The patent, which had an estimated remaining useful life of ten years, had a fair value which was $20,000 higher than its book value. Martin's Inventories on January 1, 2019 were estimated to have a fair value that was $16,000 higher than their book value.
It was predicted that Martin's goodwill impairment test, which was to be conducted on December 31, 2020, would result in a loss equal to 10% of the goodwill (regardless of the amount) at the date of acquisition being recorded. During 2019, Martin reported a net income of $60,000 and paid $12,000 in dividends. Martin's 2020 net income and dividends were $72,000 and $15,000, respectively. Martin uses straight-line amortization for all of its assets.
Assuming that Davis purchases 100% of Martin for $300,000, answer the following:
Required:
a) Prepare Davis' Equity Method journal entries for 2019 and 2020.
b) Compute the following as at December 31, 2020:
i. Investment in Martin Inc.
ii. Goodwill
iii. The amount of unamortized acquisition differential.

Question 53

Prepare a consolidated balance sheet for Par Inc. as at June 30, 2021.

Question 54

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1,2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30, 2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
What amount would appear as Big Guy's investment in Humble Corp. on its June 30, 2020 consolidated balance sheet?

A) $9,600.
B) $12,000.
C) $360,000.
D) The Investment in Humble Account would not appear on the consolidated balance sheet.

Question 55

Par Inc. purchased 70% of the outstanding voting shares of Sub Inc. for $700000 on July 1, 2020. On that date, Sub Inc. had common shares and retained earnings worth $410,000 and $170,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Sub's bonds mature on July 1, 2025. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Par Inc. and Sub Inc. declared and paid $10,000 and $5,000 in dividends, respectively during the year.
Par Inc. uses the Fair Value Enterprise Method to value the non-controlling interest in Sub Inc. on the acquisition date.
The balance sheets of both companies, as well as Sub's fair values immediately following the acquisition are shown below:
The following are the financial statements for both companies for the fiscal year ended June 30, 2021:
Income Statements
Retained Earnings Statements
Balance Sheets
Both companies use a FIFO system, and Sub's entire inventory on the date of acquisition was sold during the following year. During 2020, Sub Inc. borrowed $10,000 in cash from Par Inc. interest free to finance its operations. The amount remains unpaid as of June 30, 2021. The Par uses the Equity Method to account for its investment in Sub Inc. Corp.
Prepare Par's consolidated income statement for the year ended June 30, 2021. Show the allocation of consolidated net income between the controlling and non-controlling interests.

Question 56

Big Guy Inc. purchased 80% of the outstanding voting shares of Humble Corp. for $360,000 on July 1, 2017. On that date, Humble Corp. had common shares and retained earnings worth $180,000 and $90,000, respectively. The equipment had a remaining useful life of 5 years from the date of acquisition. Humble's bonds mature on July 1, 2027. Both companies use straight line amortization, and no salvage value is assumed for assets. The trademark is assumed to have an indefinite useful life. Goodwill is tested annually for impairment. The balance sheets of both companies, as well as Humble's fair market values on the date of acquisition are disclosed below:
$\begin{array}{|r|r|r|r|}\hline & \text { Big Guy } & \text { Humble } & \text { Humble } \\\hline & \text { (carrying value) } & \begin{array}{r}\text { (caryying } \\\text { value) }\end{array} & \text { (fair value) } \\\hline \text { Cash } & \$ 800,000 & \$ 245,000 & \$ 245,000 \\\hline \text { Accounts Receivable } & \$ 240,000 & \$ 40,000 & \$ 40,000 \\\hline \text { Inventory } & \$ 60,000 & \$ 45,000 & \$ 50,000 \\\hline \text { Equipment (net) } & \$ 900,000 & \$ 80,000 & \$ 72,000 \\\hline \text { Trademark } & & \$ 90,000 & \$ 193,000 \\\hline \text { Total Assets } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \mathbf{\$ 5 0 0 , 0 0 0} \\\hline \text { Current Liabilities } & \$ 200,000 & \$ 160,000 & \$ 160,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 & \$ 40,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 & \\\hline \text { Retained Earnings } & \$ 640,000 & \$ 90,000 & \\\hline \text { Total Liabilities and Equity } & \$ \mathbf{\$ 2 , 0 0 0 , 0 0 0} & \$ 500,000 & \\\hline\end{array}$ The following are the financial statements for both companies for the fiscal year ended June 30, 2020:
Income Statements:
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Sales } & \$ 640,000 & \$ 240,000 \\\hline \text { Investment Revenue } & \$ 8,480 & \\\hline \text { Less: Expenses: } & & \\\hline \text { Cost of Goods Sold } & \$ 300,000 & \$ 160,000 \\\hline \text { Depreciation } & \$ 81,000 & \$ 34,000 \\\hline \text { Interest Expense } & \$ 34,000 & \$ 26,000 \\\hline \text { Other Expenses } & \$ 5,000 & \$ 8,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000\\ \hline\end{array}$ Retained Earnings Statements
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Balance, July 1,2019 } & \$ 960,560 & \$ 48,000 \\\hline \text { Net Income } & \$ 228,480 & \$ 12,000 \\\hline \text { Dividends } & \$ 20,000 & \$ 2,000 \\\hline \text { Balance, June 30, 2020 } & \$ 1,169,040 & \$ 58,000\\\hline\end{array}$ Balance Sheets
$\begin{array}{|l|r|r|}\hline & \text { Big Guy } & \text { Humble } \\\hline \text { Cash } & \$ 1,200,000 & \$ 365,000 \\\hline \text { Accounts Receivable } & \$ 270,000 & \$ 55,000 \\\hline \text { Investment in Humble } & \$ 319,040 & \\\hline \text { Inventory } & \$ 70,000 & \$ 70,000 \\\hline \text { Equipment (net) } & \$ 820,000 & \$ 65,000 \\\hline \text { Trademark } & & \$ 85,000 \\\hline \text { Total Assets } & \$ 2,679,040 & \$ 640,000 \\\hline \text { Current Liabilities } & \$ 350,000 & \$ 332,000 \\\hline \text { Bonds Payable } & \$ 260,000 & \$ 70,000 \\\hline \text { Common Shares } & \$ 900,000 & \$ 180,000 \\\hline \text { Retained Earnings } & \$ 1,169,040 & \$ 58,000 \\\hline \text { Total Liabilities and Equity } &\mathbf{\$ 2 , 6 7 9 , 0 4 0} & \$ 640,000 \\\hline\end{array}$ An impairment test conducted in September 2018 on Big Guy's goodwill resulted in an impairment loss of $10,000 being recorded. Both companies use a FIFO system, and Humble's entire inventory on the date of acquisition was sold during the following year. During 2020, Humble Inc. borrowed $20,000 in cash from Big Guy Inc. interest free to finance its operations. Big Guy uses the Equity Method to account for its investment in Humble Corp. Assume that the fair value enterprise (FVE) method applies.
The amount of goodwill appearing on Big Guy's consolidated balance sheet as at June 30, 2020 would be:

A) Nil.
B) $30,000.
C) $40,000.
D) $50,000.

Question 57

Par Inc. purchased 70% of the outstanding voting shares of Sub Inc. for $700000 on July 1, 2020. On that date, Sub Inc. had common shares and retained earnings worth $410,000 and $170,000, respectively. The Equipment had a remaining useful life of 5 years from the date of acquisition. Sub's bonds mature on July 1, 2025. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Par Inc. and Sub Inc. declared and paid $10,000 and $5,000 in dividends, respectively during the year.
Par Inc. uses the Fair Value Enterprise Method to value the non-controlling interest in Sub Inc. on the acquisition date.
The balance sheets of both companies, as well as Sub's fair values immediately following the acquisition are shown below:
The following are the financial statements for both companies for the fiscal year ended June 30, 2021:
Income Statements
Retained Earnings Statements
Balance Sheets
Both companies use a FIFO system, and Sub's entire inventory on the date of acquisition was sold during the following year. During 2020, Sub Inc. borrowed $10,000 in cash from Par Inc. interest free to finance its operations. The amount remains unpaid as of June 30, 2021. The Par uses the Equity Method to account for its investment in Sub Inc. Corp.
Prepare Par's consolidated balance sheet as at the date of acquisition.

Question 58

Brand X Inc. purchased a controlling interest in Brand Y Inc. on January 1, 2020. On that date, Brand Y Inc. had common shares and retained earnings worth $180,000 and $20,000, respectively. Goodwill is tested annually for impairment. At the date of acquisition, Brand Y's assets and liabilities were assessed for fair value as follows:
The balance sheets of both companies, as at December 31, 2020 are disclosed below:
The net incomes for Brand X and Brand Y for the year ended December 31, 2020 were $1,000 and $50,000 respectively. Brand X did not declare any dividends during the year. However, Brand Y paid $51,000 in dividends to make up for several years in which the company had never paid any dividends.
An impairment test conducted on December 31, 2020 revealed that the Goodwill should actually have a value $2,000 lower than the amount calculated on the date of acquisition.
Both companies use a FIFO system, and Brand Y's inventory on the date of acquisition was sold during the year. Brand Y's equipment and patent have useful lives of 10 years and 6 years respectively from the date of acquisition. All bonds payable mature on January 1, 2025.
Prepare Brand X's consolidated balance sheet as at December 31, 2020, assuming that Brand X purchased 100% of Brand Y for $350,000 and accounts for its investment using the equity method.

Question 59

Davis Inc. purchased a controlling interest in Martin Inc. on January 1, 2019, when Martin's common shares and retained earnings were carried at $180,000 and $60,000 respectively. On that date, Martin's book values approximated its fair values, with the exception of the company's inventories and a Patent held by Martin. The patent, which had an estimated remaining useful life of ten years, had a fair value which was $20,000 higher than its book value. Martin's Inventories on January 1, 2019 were estimated to have a fair value that was $16,000 higher than their book value.
It was predicted that Martin's goodwill impairment test, which was to be conducted on December 31, 2020, would result in a loss equal to 10% of the goodwill (regardless of the amount) at the date of acquisition being recorded. During 2019, Martin reported a net income of $60,000 and declared and paid $12,000 in dividends. Martin's 2020 net income and declared and paid dividends were $72,000 and $15,000, respectively. Martin uses straight-line amortization for all of its assets.
Davis uses the Fair Value Enterprise Method.
Assuming that Davis purchases 80% of Martin for $300,000, answer the following:
Required:
a) Prepare Davis' Equity Method journal entries for 2019 and 2020.
b) Compute the following as at December 31, 2020:
i. Investment in Martin Inc.
ii. Goodwill
iii. The amount of unamortized acquisition differential.

Question 60

Brand X Inc. purchased a controlling interest in Brand Y Inc. on January 1, 2020. On that date, Brand Y Inc. had common shares and retained earnings worth $180,000 and $20,000, respectively. Goodwill is tested annually for impairment. At the date of acquisition, Brand Y's assets and liabilities were assessed for fair value as follows:
The balance sheets of both companies, as at December 31, 2020 are disclosed below:
The net incomes for Brand X and Brand Y for the year ended December 31, 2020 were $1,000 and $50,000 respectively. Brand X did not declare any dividends during the year. However, Brand Y paid and declared $51,000 in dividends in 2020 to make up for several years in which the company had never declared any dividends.
An impairment test conducted on December 31, 2020 revealed that the Goodwill should actually have a value $2,000 lower than the amount calculated on the date of acquisition.
Both companies use a FIFO system, and Brand Y's inventory on the date of acquisition was sold during the year. Brand Y's equipment and patent have useful lives of 10 years and 6 years respectively from the date of acquisition. All bonds payable mature on January 1, 2025.
Brand X uses the Fair Value Enterprise Method to value the non-controlling interest in Brand Y on the acquisition date.
Prepare Brand X's consolidated balance sheet as at December 31, 2020, assuming that Brand X purchased 80% of Brand Y for $350,000 and accounts for its investment using the equity method.

Question 61

Remburn Inc. Inc. purchased 90% of the outstanding voting shares of Stanton Inc. for $90,000 on January 1, 2019. On that date, Stanton Inc. had common shares and retained earnings worth $30,000 and $20,000, respectively. The equipment had a remaining useful life of 10 years from the date of acquisition. Stanton's trademark is estimated to have a remaining life of 5 years from the date of acquisition. Stanton's bonds mature on January 1, 2039. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Remburn Inc. and Stanton Inc. declared and paid $12,000 and $4,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Stanton's fair values on the date of acquisition are shown below:
The following are the financial statements for both companies for the fiscal year ended December 31, 2019:
Income Statements
Retained Earnings Statements
Balance Sheets
Both companies use a FIFO system, and Stanton's entire inventory on the date of acquisition was sold during the following year. During 2019, Stanton Inc. borrowed $20,000 in cash from Remburn Inc. interest free to finance its operations. Remburn uses the Cost Method to account for its investment in Stanton Inc. Moreover, Stanton sold all of its land during the year for $28,000. Goodwill impairment for 2019 was determined to be $7,000.
Remburn has chosen to value the non-controlling interest in Stanton on the acquisition date at the fair value of the subsidiary's identifiable net assets (identifiable net assets method).
Prepare a statement of changes in Non-Controlling Interest for the year ended December 31, 2019.

Question 62

Remburn Inc. Inc. purchased 90% of the outstanding voting shares of Stanton Inc. for $90,000 on January 1, 2019. On that date, Stanton Inc. had common shares and retained earnings worth $30,000 and $20,000, respectively. The equipment had a remaining useful life of 10 years from the date of acquisition. Stanton's trademark is estimated to have a remaining life of 5 years from the date of acquisition. Stanton's bonds mature on January 1, 2039. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Remburn Inc. and Stanton Inc. declared and paid $12,000 and $4,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Stanton's fair values on the date of acquisition are shown below:
The following are the financial statements for both companies for the fiscal year ended December 31, 2019:
Income Statements
Retained Earnings Statements
Balance Sheets
Both companies use a FIFO system, and Stanton's entire inventory on the date of acquisition was sold during the following year. During 2019, Stanton Inc. borrowed $20,000 in cash from Remburn Inc. interest free to finance its operations. Remburn uses the Cost Method to account for its investment in Stanton Inc. Moreover, Stanton sold all of its land during the year for $28,000. Goodwill impairment for 2019 was determined to be $7,000.
Remburn has chosen to value the non-controlling interest in Stanton on the acquisition date at the fair value of the subsidiary's identifiable net assets (identifiable net assets method).
Disregard the above goodwill impairment loss provided in the question. Instead, assume that Stanton Inc. has only one cash-generating unit with goodwill and that Stanton Inc.'s common shares had a fair market value of $51,000 on December 31, 2019. Determine if an impairment loss has resulted. If yes, apply the impairment loss to determine the revised carrying amounts of the goodwill and identifiable assets.

Question 63

Remburn Inc. Inc. purchased 90% of the outstanding voting shares of Stanton Inc. for $90,000 on January 1, 2019. On that date, Stanton Inc. had common shares and retained earnings worth $30,000 and $20,000, respectively. The equipment had a remaining useful life of 10 years from the date of acquisition. Stanton's trademark is estimated to have a remaining life of 5 years from the date of acquisition. Stanton's bonds mature on January 1, 2039. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Remburn Inc. and Stanton Inc. declared and paid $12,000 and $4,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Stanton's fair values on the date of acquisition are shown below:
The following are the financial statements for both companies for the fiscal year ended December 31, 2019:
Income Statements
Retained Earnings Statements
Balance Sheets

Question 64

Remburn Inc. Inc. purchased 90% of the outstanding voting shares of Stanton Inc. for $90,000 on January 1, 2019. On that date, Stanton Inc. had common shares and retained earnings worth $30,000 and $20,000, respectively. The equipment had a remaining useful life of 10 years from the date of acquisition. Stanton's trademark is estimated to have a remaining life of 5 years from the date of acquisition. Stanton's bonds mature on January 1, 2039. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Remburn Inc. and Stanton Inc. declared and paid $12,000 and $4,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Stanton's fair values on the date of acquisition are shown below:
The following are the financial statements for both companies for the fiscal year ended December 31, 2019:
Income Statements
Retained Earnings Statements
Balance Sheets
Both companies use a FIFO system, and Stanton's entire inventory on the date of acquisition was sold during the following year. During 2019, Stanton Inc. borrowed $20,000 in cash from Remburn Inc. interest free to finance its operations. Remburn uses the Cost Method to account for its investment in Stanton Inc. Moreover, Stanton sold all of its land during the year for $28,000. Goodwill impairment for 2019 was determined to be $7,000.
Remburn has chosen to value the non-controlling interest in Stanton on the acquisition date at the fair value of the subsidiary's identifiable net assets (identifiable net assets method).
Prepare a consolidated balance sheet for Remburn Inc. as at December 31, 2019.

Question 65

Remburn Inc. Inc. purchased 90% of the outstanding voting shares of Stanton Inc. for $90,000 on January 1, 2019. On that date, Stanton Inc. had common shares and retained earnings worth $30,000 and $20,000, respectively. The equipment had a remaining useful life of 10 years from the date of acquisition. Stanton's trademark is estimated to have a remaining life of 5 years from the date of acquisition. Stanton's bonds mature on January 1, 2039. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Remburn Inc. and Stanton Inc. declared and paid $12,000 and $4,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Stanton's fair values on the date of acquisition are shown below:
The following are the financial statements for both companies for the fiscal year ended December 31, 2019:
Income Statements
Retained Earnings Statements
Balance Sheets

Question 66

Remburn Inc. Inc. purchased 90% of the outstanding voting shares of Stanton Inc. for $90,000 on January 1, 2019. On that date, Stanton Inc. had common shares and retained earnings worth $30,000 and $20,000, respectively. The equipment had a remaining useful life of 10 years from the date of acquisition. Stanton's trademark is estimated to have a remaining life of 5 years from the date of acquisition. Stanton's bonds mature on January 1, 2039. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Remburn Inc. and Stanton Inc. declared and paid $12,000 and $4,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Stanton's fair values on the date of acquisition are shown below:
The following are the financial statements for both companies for the fiscal year ended December 31, 2019:
Income Statements
Retained Earnings Statements
Balance Sheets
Both companies use a FIFO system, and Stanton's entire inventory on the date of acquisition was sold during the following year. During 2019, Stanton Inc. borrowed $20,000 in cash from Remburn Inc. interest free to finance its operations. Remburn uses the Cost Method to account for its investment in Stanton Inc. Moreover, Stanton sold all of its land during the year for $28,000. Goodwill impairment for 2019 was determined to be $7,000.
Remburn has chosen to value the non-controlling interest in Stanton on the acquisition date at the fair value of the subsidiary's identifiable net assets (identifiable net assets method).
Prepare Remburn's consolidated income statement for the year ended December 31, 2019 and show the allocation of the consolidated net income between the controlling and non-controlling interests.

Question 67

Remburn Inc. Inc. purchased 90% of the outstanding voting shares of Stanton Inc. for $90,000 on January 1, 2019. On that date, Stanton Inc. had common shares and retained earnings worth $30,000 and $20,000, respectively. The equipment had a remaining useful life of 10 years from the date of acquisition. Stanton's trademark is estimated to have a remaining life of 5 years from the date of acquisition. Stanton's bonds mature on January 1, 2039. The inventory was sold in the year following the acquisition. Both companies use straight line amortization, and no salvage value is assumed for assets. Remburn Inc. and Stanton Inc. declared and paid $12,000 and $4,000 in dividends, respectively during the year.
The balance sheets of both companies, as well as Stanton's fair values on the date of acquisition are shown below:
The following are the financial statements for both companies for the fiscal year ended December 31, 2019:
Income Statements
Retained Earnings Statements
Balance Sheets
Both companies use a FIFO system, and Stanton's entire inventory on the date of acquisition was sold during the following year. During 2019, Stanton Inc. borrowed $20,000 in cash from Remburn Inc. interest free to finance its operations. Remburn uses the Cost Method to account for its investment in Stanton Inc. Moreover, Stanton sold all of its land during the year for $28,000. Goodwill impairment for 2019 was determined to be $7,000.
Remburn has chosen to value the non-controlling interest in Stanton on the acquisition date at the fair value of the subsidiary's identifiable net assets (identifiable net assets method).
Prepare Remburn's statement of consolidated retained earnings as at December 31, 2019.