Deck 8: Consolidated Cash Flows and Changes in Ownership

Question 1

What is the amount of the acquisition differential amortization (excluding goodwill impairment) for 2019?

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

Answer 1

D

Question 2

What is the amount of the non-controlling interest at acquisition?

A) $8,400.
B) $18,000.
C) $50,000.
D)$150,000.

Answer 2

D

Question 3

What is the carrying value of the trademark after the sale?

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

Answer 3

C

Question 4

What percentage of Marvin's shares was purchased by Hanson on January 1, 2018?

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

Question 5

What would be the balance in the investment in 123 Inc. accounts after the sale?

A) $100,000.
B) $150,000.
C) $210,000.
D)$225,000.

Question 6

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

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

Question 7

What would be the amount of the gain or loss on the sale of the 14,000 shares?

A) A loss of $42,000.
B) A loss of $4,000.
C) A gain of $4,000.
D)A gain of $54,000.

Question 8

What is Hanson's ownership interest in Marvin after its January 1, 2019 purchase?

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

Question 9

What is the amount of the acquisition differential amortization for 2018 (excluding goodwill impairment)?

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

Question 10

What would be the amount of the unamortized acquisition differential (excluding goodwill) at the end of 2019?

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

Question 11

What percentage of its Investment in 123 was sold by ABC?

A) 14%
B) 21%
C) 28%
D)40%

Question 12

Assuming that Hanson had no recorded goodwill prior to January 1, 2018, what would be the amount of goodwill appearing on Hanson's December 31, 2018 consolidated balance sheet?

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

Question 13

What is the amount of goodwill arising from this business combination?

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

Question 14

What is the amount of unamortized acquisition differential (including goodwill) after the sale?

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

Question 15

What is ABC's ownership interest in 123 after its sale?

A) 21%
B) 36%
C) 42%
D)56%

Question 16

By how much would the non-controlling interest amount have changed as a result of the Hanson's second purchase?

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

Question 17

What effect (if any) would Hanson's January 1, 2019 purchase have on the company's consolidated cash flows for the year?

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

Question 18

What is the amount of goodwill arising from Hanson's January 1, 2018 acquisition?

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

Question 19

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

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

Question 20

Assuming that Hanson had no recorded goodwill prior to January 1, 2018, what would be the amount of goodwill appearing on Hanson' December 31, 2019 Consolidated Balance Sheet?

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

Question 21

What effect would the purchase at January 1, 2019 have on the consolidated equity of Hanson?

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

Question 22

What would be the balance in Hanson's investment in Marvin account on December 31, 2019?

A) $303,000.
B) $347,900.
C) $348,925.
D)$349,950.

Question 23

What would be Whine's ownership interest in Dine following Chompster's purchase of shares in Dine?

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

Question 24

What would be the amount of cash appearing on Whine's December 31, 2018 consolidated balance sheet (after the issue of shares to Chompster)?

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

Question 25

What is the Consolidated Net Income for the year attributable to the shareholders of A Inc.?

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

Question 26

How much is the non-controlling interest in A Inc.'s Consolidated Net Income for 2018?

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

Question 27

How much is A Inc.'s Consolidated Net Income for 2018?

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

Question 28

The amount of retained earnings appearing on the December 31, 2018 consolidated balance sheet would be:

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

Question 29

What would be the amount of the non-controlling interest appearing on Whine's consolidated balance sheet as at December 31, 2018 after the issue of shares to Chompster?

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

Question 30

What would be the gain or loss arising from Dine's share issue to Chompster?

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

Question 31

What would be the amount of the non-controlling interest appearing on Whine's consolidated balance sheet as at December 31, 2018 before the issue of shares to Chompster?

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

Question 32

What is the balance in the investment in Q account immediately following the sale?

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

Question 33

What is the amount of Goodwill that arose from P's investment in Q?

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

Question 34

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

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

Question 35

What was the amount of acquisition differential amortization for 2019?

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

Question 36

How much of the acquisition differential was allocated to patents?

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

Question 37

What would be the amount of the unamortized acquisition differential on December 31, 2018?

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

Question 38

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

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

Question 39

What is the gain or loss on P's sale of its shares on Q Corp.?

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

Question 40

How much of the acquisition differential was allocated to equipment?

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

Question 41

Prepare Lime's December 31, 2017 Consolidated Balance Sheet.

Question 42

Compute the Goodwill on the date of the acquisition.

Question 43

The amount of goodwill appearing on the December 31, 2018 consolidated balance sheet would be:

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

Question 44

The trial balances of Ash Inc. and its subsidiary Cinder Corp. on December 31, 2018 are shown below: Other Information:
Ash acquired Cinder in three stages:
Cinder was incorporated on January 1, 2013. On that date, Cinder issued 100,000 voting shares. Any difference between the cost and book value is attributable entirely to trademarks, which are to be amortized over 5 years. The company has neither issued nor retired shares since the date of its incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1, 2017. These assets had a 10 year remaining life.
Intercompany sales of inventory during 2018 amounted to $250,000. Unrealized inventory profits for each company are shown below for 2018. The amounts indicate the amount of profit in each company's inventory.
All inventories on hand at the start of 2018 were sold to outsiders during the year. The net Incomes of both companies are evenly earned throughout the year. Both companies are subject to an effective corporate tax rate of 20%.
What amount will be shown in the consolidated balance sheet of Ash as at December 31, 2018, for trademarks?

Question 45

a) Prepare a schedule of intercompany profits as at December 31, 2017 for both companies.
b) Compute the amount of deferred taxes that should appear on the December 31, 2017 Consolidated Balance Sheet.

Question 46

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

A) If the preferred shares are participating, only the current year's Net Income would be allocated to the preferred shares.
B) If the preferred shares are non-cumulative, only the current year's Net Income would be allocated to preferred shares, since dividends are never in arrears with non-cumulative preferred shares.
C) If the preferred shares are participating, the current year's Net Income would be allocated to the shares, only if the subsidiary is fully owned by the parent.
D)There can never be any dividends in arrears when preferred shares are participating.

Question 47

The amount appearing under equipment on the December 31, 2018 consolidated balance sheet would be:

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

Question 48

The trial balances of Ash Inc. and its subsidiary Cinder Corp. on December 31, 2018 are shown below: Other Information:
Ash acquired Cinder in three stages:
Cinder was incorporated on January 1, 2013. On that date, Cinder issued 100,000 voting shares. Any difference between the cost and book value is attributable entirely to trademarks, which are to be amortized over 5 years. The company has neither issued nor retired shares since the date of its incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1, 2017. These assets had a 10 year remaining life.
Intercompany sales of inventory during 2018 amounted to $250,000. Unrealized inventory profits for each company are shown below for 2018. The amounts indicate the amount of profit in each company's inventory.
All inventories on hand at the start of 2018 were sold to outsiders during the year. The net Incomes of both companies are evenly earned throughout the year. Both companies are subject to an effective corporate tax rate of 20%.
Beta Corp. owns 80% of Gamma Corp. The Consolidated Financial Statements of Beta Corp. for 2018 and 2019 are shown below:
Beta Corp.
Consolidated Balance Sheet,
December 31, 2019 Beta Corp.
Consolidated Income Statement,
For the year ended December 31, 2019
Other Information:
Beta purchased its interest in Gamma on January 1, 2015 for $360,000 when the company's net assets were valued at $300,000. The acquisition differential was allocated equally between goodwill and equipment, which was estimated to have a remaining useful life of ten years from the acquisition date.
Gamma reported a net income of $75,000 and paid dividends of $5,000 during 2019.
Beta issued $300,000 in bonds during the year. Beta reported an equity method net Income of $300,000 and paid $70,000 in dividends to its shareholders.
Required:
Prepare a Consolidated Statement of Cash Flows for Beta Corp. for 2019.

Question 49

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

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

Question 50

Prepare a calculation of non-controlling interest as at December 31, 2017.

Question 51

Compute the Consolidated Net Income for 2017 and show its allocation between the controlling and non-controlling interests. Do not prepare an Income Statement.

Question 52

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

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

Question 53

The trial balances of Ash Inc. and its subsidiary Cinder Corp. on December 31, 2018 are shown below: Other Information:
Ash acquired Cinder in three stages:
Cinder was incorporated on January 1, 2013. On that date, Cinder issued 100,000 voting shares. Any difference between the cost and book value is attributable entirely to trademarks, which are to be amortized over 5 years. The company has neither issued nor retired shares since the date of its incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1, 2017. These assets had a 10 year remaining life.
Intercompany sales of inventory during 2018 amounted to $250,000. Unrealized inventory profits for each company are shown below for 2018. The amounts indicate the amount of profit in each company's inventory.
All inventories on hand at the start of 2018 were sold to outsiders during the year. The net Incomes of both companies are evenly earned throughout the year. Both companies are subject to an effective corporate tax rate of 20%.
Compute consolidated inventory for Ash as at December 31, 2018.

Question 54

The following information was derived from the 2017 consolidated financial statements of X Inc., which owns 80% of Y Inc. as well as 40% of Z Inc.: The cash balance at the start of 2017 was $200,000.
Required:
Prepare the consolidated statement of cash flows for Lime Inc for the year ended December 31, 2017.

Question 55

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

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

Question 56

Prepare a calculation of Consolidated Retained Earnings at as December 31, 2018.
Calculation of Consolidated Retained Earnings:

Question 57

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

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

Question 58

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

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

Question 59

The trial balances of Ash Inc. and its subsidiary Cinder Corp. on December 31, 2018 are shown below: Other Information:
Ash acquired Cinder in three stages:
Cinder was incorporated on January 1, 2013. On that date, Cinder issued 100,000 voting shares. Any difference between the cost and book value is attributable entirely to trademarks, which are to be amortized over 5 years. The company has neither issued nor retired shares since the date of its incorporation.
Ash sold depreciable assets to Cinder at a loss of $20,000 on January 1, 2017. These assets had a 10 year remaining life.
Intercompany sales of inventory during 2018 amounted to $250,000. Unrealized inventory profits for each company are shown below for 2018. The amounts indicate the amount of profit in each company's inventory.
All inventories on hand at the start of 2018 were sold to outsiders during the year. The net Incomes of both companies are evenly earned throughout the year. Both companies are subject to an effective corporate tax rate of 20%.
Compute the Consolidated Cost of Goods Sold for 2018.

Question 60

The amount of common shares appearing on the December 31, 2018 consolidated balance sheet would be:

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

Question 61

On January 1, 2018, Philcorp acquired 8,000 of the outstanding 10,000 shares of Anderco by issuing its own shares with a market value of $400,000. On June 30, 2019, Anderco issued an additional 2,000 shares for cash consideration of $60 per share, none of which were acquired by Philcorp. Immediately before the issue, the shareholders' equity of Anderco amounted to $500,000 and the unamortized purchase discrepancy was $65,000. Philcorp uses the equity method to record its investment in Anderco.
Required:
What gain or loss will appear in the consolidated financial statements of Philcorp and its subsidiary Anderco as a result of this transaction?

Question 62

Parrot Company purchased 75% of the outstanding common shares and 50% of the outstanding preference shares of Saltines Inc. on January 1, 2019, on which date the balance sheet and fair values of Saltines' assets and liabilities were as follows:
Saltines Inc.
Balance Sheet
as at December 31, 2018 $$\begin{array} { | l | l | l | } \hline & \text { Book Values } & \text { Fair Values } \\\hline & & \\\hline \text { Cash } & \$ 130,000 & \$ 130,000 \\\hline \text { Accounts receivable } & 120,000 & 110,000 \\\hline \text { Inventory } & 320,000 & 290,000 \\\hline \text { Capital assets (net) } & 720,000 & 800,000 \\\hline & \$ 1,290,000 & \\\hline \text { Current liabilities } & \$ 190,000 & \$ 190,000 \\\hline \text { Long-term debt } & 300,000 & 300,000 \\\hline \text { Common shares } & 300,000 & \\\hline \text { Preterred shares } & 200,000 & \\\hline \text { Contributed surplus } & 50,000 & \\\hline \text { Retained earnings } & 250,000 & \\\hline & \$ 1,290,000 & \\\hline\end{array}$$ Parrot paid $460,000 for the common shares and $105,000 for the preference shares. The contributed surplus arose from the issue of the preferred shares at a price higher than their stated value. The preferred shares paid cumulative dividends of 5% of their stated value but dividends for 2017 and 2018 were unpaid. The shares were redeemable, at the option of the issuer, at a premium of 8%. The capital assets of Saltines had a remaining useful life of ten years at January 1, 2009. Any unallocated acquisition differential would be treated as goodwill, which is assessed annually for impairment. Parrot accounts for its interest in Saltines using the cost method and accounts for the non-controlling interest in its consolidated financial statements based on the fair value of the subsidiary, proportionate to the price paid for the controlling interest.
Parrot's net income for 2019 was $300,000 and Parrot paid dividends of $150,000 on December 31, 2019. Saltines' net income for 2019 was $120,000 before a loss from discontinued operations of $60,000 (net of tax). Saltines paid dividends of $75,000 in 2019. (Parrot included all dividends received in its income for 2019.)

-Calculate the amount of the non-controlling interest on the consolidated balance sheet of Parrot and its subsidiary as at December 31, 2019. $\begin{array}{|l|l|l|l|}\hline \text { Consideration for } 75 \% \text { of common shares } & & & \$ 460,000 \\\hline \text { Implied value of } 100 \% \text { of common shares } & \$ 460,000 / 0.75) & & \$ 613,333 \\\hline & & & \\\hline \text { Net book value at acquisition } & & \$ 800,000 &\\\hline \text { Allocated to preferred shares: }\\\hline \text { Stated value } & \$ 200,000 & & \\\hline \text { Redemption premium } & 16,000 & & \\\hline \text { Dividends in arrears } & 20,000 & 236,000 & \$ 564,000 \\\hline \text { Acquisition differential } & & & \$ 49,333 \\\hline\\\hline \text { Allocated to: } & & \\\hline \text { Accounts receivable } & & (\$ 10,000) \\\hline \text { Inventory } & &( \$ 30,000) \\\hline \text { Capital assets } && \$ 80,000 \\\hline \text { Goodwill } && \$ 9,333 \\\hline & &\$ 49,333 \\\hline\end{array}$

Question 63

Parrot has no contributed surplus on its own balance sheet as at the end of 2019. Calculate the amount of the contributed surplus shown on the consolidated balance sheet of Parrot and its subsidiary as at December 31, 2019.

Question 64

Parrot Company purchased 75% of the outstanding common shares and 50% of the outstanding preference shares of Saltines Inc. on January 1, 2019, on which date the balance sheet and fair values of Saltines' assets and liabilities were as follows:
Saltines Inc.
Balance Sheet
as at December 31, 2018 $$\begin{array} { | l | l | l | } \hline & \text { Book Values } & \text { Fair Values } \\\hline & & \\\hline \text { Cash } & \$ 130,000 & \$ 130,000 \\\hline \text { Accounts receivable } & 120,000 & 110,000 \\\hline \text { Inventory } & 320,000 & 290,000 \\\hline \text { Capital assets (net) } & 720,000 & 800,000 \\\hline & \$ 1,290,000 & \\\hline \text { Current liabilities } & \$ 190,000 & \$ 190,000 \\\hline \text { Long-term debt } & 300,000 & 300,000 \\\hline \text { Common shares } & 300,000 & \\\hline \text { Preterred shares } & 200,000 & \\\hline \text { Contributed surplus } & 50,000 & \\\hline \text { Retained earnings } & 250,000 & \\\hline & \$ 1,290,000 & \\\hline\end{array}$$ Parrot paid $460,000 for the common shares and $105,000 for the preference shares. The contributed surplus arose from the issue of the preferred shares at a price higher than their stated value. The preferred shares paid cumulative dividends of 5% of their stated value but dividends for 2017 and 2018 were unpaid. The shares were redeemable, at the option of the issuer, at a premium of 8%. The capital assets of Saltines had a remaining useful life of ten years at January 1, 2009. Any unallocated acquisition differential would be treated as goodwill, which is assessed annually for impairment. Parrot accounts for its interest in Saltines using the cost method and accounts for the non-controlling interest in its consolidated financial statements based on the fair value of the subsidiary, proportionate to the price paid for the controlling interest.
Parrot's net income for 2019 was $300,000 and Parrot paid dividends of $150,000 on December 31, 2019. Saltines' net income for 2019 was $120,000 before a loss from discontinued operations of $60,000 (net of tax). Saltines paid dividends of $75,000 in 2019. (Parrot included all dividends received in its income for 2019.)

-Calculate the consolidated net income of Parrot and its subsidiary as at December 31, 2019.