Question 1

Matthews Co. acquired all of the common stock of Jackson Co. on January 1, 2020. As of that date, Jackson had the following trial balance:  During 2020, Jackson reported net income of $96,000 while paying dividends of $12,000. During 2021, Jackson reported net income of $132,000 while paying dividends of $36,000. Assume that Matthews Co. acquired the common stock of Jackson Co. for $588,000 in cash. As of January 1, 2020, Jackson's land had a fair value of $102,000, its buildings were valued at $188,000, and its equipment was appraised at $216,000. Any excess of consideration transferred over fair value of assets and liabilities acquired is due to an unamortized patent to be amortized over 10 years.Matthews decided to use the equity method for this investment.Required:(A.) Prepare consolidation worksheet entries for December 31, 2020.(B.) Prepare consolidation worksheet entries for December 31, 2021.

Accepted Answer

The answer of Matthews Co. acquired all of the common...

Question 2

Anderson, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2020, at an amount in excess of Kenneth's fair value. On that date, Kenneth has equipment with a book value of $90,000 and a fair value of $120,000 (10-year remaining life). Anderson has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2021, Anderson has equipment with a book value of $975,000 but a fair value of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair value of $125,000.If Anderson applies the partial equity method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2021?

Accepted Answer

A)  $1,080,000. 
B)  $1,104,000. 
C)  $1,100,000. 
D)  $1,468,000. 
E)  $1,475,000.

Question 3

What is the partial equity method? How does it differ from the equity method? What are its advantages and disadvantages compared to the equity method?

Accepted Answer

The answer of What is the partial equity method? How...

Question 4

Under the equity method of accounting for an investment:

Accepted Answer

A)  The investment account remains at initial value. 
B)  Dividends received are recorded as revenue. 
C)  Goodwill is amortized over 20 years. 
D)  Income reported by the subsidiary increases the investment account. 
E)  Dividends received increase the investment account.

Question 5

Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2020. At that date, Glen owns only three assets and has no liabilities:  If Watkins pays $450,000 in cash for Glen, what acquisition-date fair value allocation, net of amortization, should be attributed to the subsidiary's Equipment in consolidation at December 31, 2022?

Accepted Answer

A)  $(5,000). 
B)  $80,000. 
C)  $75,000. 
D)  $73,500. 
E)  $(3,500).

Question 6

Reeder Corp. acquired one hundred percent of O'Neill Inc. on January 1, 2019, at a price in excess of the subsidiary's fair value. On that date, Reeder's equipment (ten-year life) had a book value of $380,000 but a fair value of $460,000. O'Neill had equipment (ten-year life) with a book value of $240,000 and a fair value of $370,000. Reeder used the partial equity method to record its investment in O'Neill. On December 31, 2021, Reeder had equipment with a book value of $270,000 and a fair value of $400,000. O'Neill had equipment with a book value of $180,000 and a fair value of $300,000. What is the consolidated balance for the Equipment account as of December 31, 2021?

Accepted Answer

A)  $450,000. 
B)  $531,000. 
C)  $541.000. 
D)  $567,000. 
E)  $580,000.

Question 7

When consolidating a subsidiary under the equity method, which of the following statements is true with regard to the subsidiary subsequent to the year of acquisition?

Accepted Answer

A)  All net assets are revalued to fair value and must be amortized over their useful lives. 
B)  Only net assets that had excess fair value over book value when acquired by the parent must be amortized over their useful lives. 
C)  All depreciable net assets are revalued to fair value at date of acquisition and must be amortized over their useful lives. 
D)  Only depreciable net assets that have excess fair value over book value must be amortized over their useful lives. 
E)  Only assets that have excess fair value over book value must be amortized over their useful lives.

Question 8

According to the FASB ASC regarding the testing procedures for Goodwill Impairment, the proper procedure for conducting impairment testing is:

Accepted Answer

A)  Goodwill recognized in consolidation may be amortized uniformly and only tested if the amortization method originally chosen is changed. 
B)  Goodwill recognized in consolidation must only be impairment tested prior to disposal of the consolidated unit to eliminate the impairment of goodwill from the gain or loss on the sale of that specific entity. 
C)  Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by quantitative assessment of the possible impairment of the fair value of the unit relative to the book value, and then a qualitative assessment as to why the impairment, if any, occurred for disclosure. 
D)  Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by qualitative assessment of the possibility of impairment of the unit fair value relative to the book value, and then quantitative assessments as to how much impairment, if any, occurred for disclosure. 
E)  Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by qualitative assessment of the possibility of impairment of the unit fair value relative to the book value, and then quantitative assessments as to how much impairment, if any, occurred for asset write-down.

Question 9

A business combination results in $90,000 of goodwill. Several years later a worksheet is being produced to consolidate the two companies. Describe in words at what amount goodwill will be reported at this date.

Accepted Answer

The answer of A business combination results in $90,000 of...

Question 10

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2023. Several of Green's accounts have been omitted.  Green acquired 100% of Vega on January 1, 2019, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2019, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the December 31, 2023 consolidated retained earnings.

Accepted Answer

A)  $1,645,375. 
B)  $1,350,000. 
C)  $1,565,375. 
D)  $1,840,375. 
E)  $1,265,375.

Question 11

Following are selected accounts for Green Corporation and Vega Company as of December 31, 2023. Several of Green's accounts have been omitted.  Green acquired 100% of Vega on January 1, 2019, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2019, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.Compute the book value of Vega at January 1, 2019.

Accepted Answer

A)  $997,500. 
B)  $857,500. 
C)  $1,200,000. 
D)  $1,600,000. 
E)  $827,500.

Question 12

Which of the following is false regarding contingent consideration in business combinations?

Accepted Answer

A)  Contingent consideration payable in cash is reported under liabilities. 
B)  Contingent consideration payable in stock shares is reported under stockholders' equity. 
C)  Contingent consideration is recorded because of its substantial probability of eventual payment. 
D)  The contingent consideration fair value is recognized as part of the acquisition regardless of whether eventual payment is based on future performance of the target firm or future stock price of the acquirer. 
E)  Contingent consideration is reflected in the acquirer's balance sheet at the present value of the potential expected future payment.

Question 13

Prince Company acquires Duchess, Inc. on January 1, 2019. At the date of acquisition, Duchess has long-term debt with a fair value of $1,500,000 and a carrying amount of $1,200,000.With respect to long-term debt consolidation worksheet adjustments in periods following the acquisition, which of the following is correct?

Accepted Answer

A)  Debit Interest Expense and Credit Long-Term Debt Expense. 
B)  Prince must recognize an increase in interest expense if the amount is material. 
C)  Do not adjust the value of the debt because Prince is not obligated to repay the debt. 
D)  Credit Long-Term Debt and Debit Interest Expense on the balance sheet of Duchess. 
E)  Debit Long-Term Debt and Credit Interest Expense.

Question 14

Jackson Company acquires 100% of the stock of Clark Corporation on January 1, 2020, for $4,100 cash. As of that date Clark has the following trial balance:  Net income and dividends reported by Clark for 2020 and 2021 follow:  The fair value of Clark's net assets that differ from their book values are listed below:  Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life.Compute the amount of Clark's long-term liabilities that would be reported in a December 31, 2021, consolidated balance sheet.

Accepted Answer

A)  $1,750. 
B)  $1,800. 
C)  $1,850. 
D)  $1,900. 
E)  $2,000.

Question 15

Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1, 2020, by issuing 11,000 shares of $1 par value common stock. Jaynes' shares had a $17 per share fair value. On that date, Aaron reported a net book value of $120,000. However, its equipment (with a five-year remaining life) was undervalued by $6,000 in the company's accounting records. Any excess of consideration transferred over fair value of assets and liabilities acquired is assigned to an unrecorded patent to be amortized over ten years.The following figures came from the individual accounting records of these two companies as of December 31, 2020:  The following figures came from the individual accounting records of these two companies as of December 31, 2021:  What balance would Jaynes' Investment in Aaron Co. account have shown on December 31, 2021, when the equity method was applied for this acquisition?

Accepted Answer

The answer of Jaynes Inc. acquired all of Aaron Co.'s...

Question 16

Under the initial value method, the parent recognizes income when

Accepted Answer

A)  Dividends are received from the investee. 
B)  Dividends are declared by the investee. 
C)  The related expense has been incurred. 
D)  The related contract is signed by the subsidiary. 
E)  It is earned by the subsidiary.

Question 17

Anderson, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2020, at an amount in excess of Kenneth's fair value. On that date, Kenneth has equipment with a book value of $90,000 and a fair value of $120,000 (10-year remaining life). Anderson has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2021, Anderson has equipment with a book value of $975,000 but a fair value of $1,350,000 and Kenneth has equipment with a book value of $105,000 but a fair value of $125,000.If Anderson applies the equity method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2021?

Accepted Answer

A)  $1,080,000. 
B)  $1,104,000. 
C)  $1,100,000. 
D)  $1,468,000. 
E)  $1,475,000.

Question 18

Black Co. acquired 100% of Blue, Inc. on January 1, 2020. On that date, Blue had land with a book value of $38,000 and a fair value of $49,000. Also, on the date of acquisition, Blue had a building with a book value of $250,000 and a fair value of $460,000. Blue had equipment with a book value of $340,000 and a fair value of $280,000. The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life. How much total expense will be in the consolidated financial statements for the year ended December 31, 2020 related to the acquisition allocations of Blue?

Accepted Answer

A)  $0. 
B)  $9,000. 
C)  $12,000. 
D)  $21,000. 
E)  $30,000.

Question 19

Kaye Company acquired 100% of Fiore Company on January 1, 2021. Kaye paid $1,000 excess consideration over book value, which is being amortized at $20 per year. There was no goodwill in the combination. Fiore reported net income of $400 in 2021 and paid dividends of $100.Assume the initial value method is applied. How much equity income will Kaye report on its internal accounting records as a result of Fiore's operations?

Accepted Answer

A)  $400 
B)  $300 
C)  $380 
D)  $100 
E)  $210

Question 20

Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2020 for $80,000, consisting of $20,000 in cash and 6,000 shares of stock. A contingent payment of $12,000 in cash will be paid on April 1, 2021 if Gataux generates cash flows from operations of $26,500 or more in the next year. Beatty estimates that there is a 30% probability that Gataux will generate at least $26,500 next year, and uses an interest rate of 4% to incorporate the time value of money. The fair value of $12,000 at 4%, using a probability-weighted approach, is $3,461. A contingent payment of $20,000, payable in stock, will be paid to the former owners of Gataux on April 1, 2021 if the market value of Beatty stock drops below $10 per share. Beatty estimates there is a 15% probability that its share price will not exceed that threshold. Using the same interest rate and probability-weighted approach, Beatty calculates the market value of the stock contingency to be $2,884.On April 1, 2021, Beatty stock closes with a market value of $8.98 per share. How many shares of stock, rounded to the next whole number, must it issue to the former owners of Gataux?

Accepted Answer

A)  682 
B)  2,000 
C)  2,228 
D)  2,884 
E)  6,000

Exam 3: Consolidations - Subsequent to the Date of Acquisition