Question 1

Vaughn Inc. acquired all of the outstanding common stock of Roberts Co. on January 1, 2020, for $276,000. Annual amortization of $21,000 resulted from this acquisition. Vaughn reported net income of $80,000 in 2020 and $60,000 in 2021 and paid $24,000 in dividends each year. Roberts reported net income of $50,000 in 2020 and $57,000 in 2021 and paid $12,000 in dividends each year. What is the Investment in Roberts Co. balance on Vaughn's books as of December 31, 2021, if the equity method has been applied?

Accepted Answer

A) $317,000. 
B) $326,000. 
C) $341,000. 
D) $368,000. 
E) $383,000.

Question 2

One company acquires another company in a combination accounted for under the acquisition method. The acquiring company decides to apply the initial value method in accounting for the combination. What is one reason the acquiring company might have made this decision?

Accepted Answer

A) It is the only method allowed by the SEC. 
B) It is relatively easy to apply. 
C) It is the only internal reporting method allowed by generally accepted accounting principles. 
D) Operating results on the parent's financial records reflect consolidated totals. 
E) When the initial value method is used, no worksheet entries are required in the consolidation process.

Question 3

How is the goodwill impairment process simplified for private companies?

Accepted Answer

The answer of How is the goodwill impairment process simplified...

Question 4

Carnes Co. decided to use the partial equity method to account for its investment in Domino Corp. An unamortized trademark associated with the acquisition was $30,000, and Carnes decided to amortize the trademark over ten years. For 2021, Carnes' Equity in Subsidiary Earnings was $78,000.Required:What balance would have been in the Equity in Subsidiary Earnings account if Carnes had used the equity method?

Accepted Answer

The answer of Carnes Co. decided to use the partial...

Question 5

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 buildings that would be reported in a December 31, 2021, consolidated balance sheet.

Accepted Answer

A) $1,200. 
B) $1,280. 
C) $1,360. 
D) $1,440. 
E) $1,600.

Question 6

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 7

Compare the differences in accounting treatment for goodwill between U.S. GAAP and IFRS.

Accepted Answer

The answer of Compare the differences in accounting treatment for...

Question 8

From which methods can a parent choose for its internal recordkeeping related to the operations of a subsidiary?

Accepted Answer

The answer of From which methods can a parent choose...

Question 9

Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination?

Accepted Answer

A) Goodwill. 
B) Equipment. 
C) Retained Earnings. 
D) Common Stock. 
E) Equity in Subsidiary Earnings.

Question 10

Which of the following is not a factor to be considered when determining the useful life of an intangible asset?

Accepted Answer

A) Legal, regulatory or contractual provisions. 
B) The effects of obsolescence. 
C) The expected use of the asset by the organization. 
D) The fair value of the asset. 
E) The level of maintenance expenditures that will be required to obtain expected future benefits.

Question 11

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.Using the acquisition method, how will Beatty record the stock contingency?

Accepted Answer

A) Credit Contingent Performance Obligation, $20,000. 
B) Debit Additional Paid-In Capital, $20,000. 
C) Credit Additional Paid-In Capital, $2,884. 
D) Debit Contingent Performance Obligation, $2,884. 
E) No entry.

Question 12

On January 1, 2020, Barber Corp. paid $1,160,000 to acquire Thompson Co. Thompson maintained separate incorporation. Barber used the equity method to account for the investment. The following information is available for Thompson's assets, liabilities, and stockholders' equity accounts on January 1, 2020:  Thompson earned net income for 2020 of $134,000 and paid dividends of $51,000 during the year.In Barber's accounting records, what amount would appear on December 31, 2020 for equity in subsidiary earnings?

Accepted Answer

A) $83,000. 
B) $133,100. 
C) $134,000. 
D) $134,900. 
E) $185,000.

Question 13

For an acquisition when the subsidiary maintains its incorporation, under the partial equity method, what adjustments are made to the balance of the investment account?

Accepted Answer

The answer of For an acquisition when the subsidiary maintains...

Question 14

Consolidated net income using the equity method for an acquisition combination is computed as follows:

Accepted Answer

A) Parent company's revenues from its own operations plus subsidiary retained earnings. 
B) Parent's reported net income plus subsidiary dividends. 
C) Combined revenues less combined expenses less equity in subsidiary's earnings less amortization of fair-value allocations in excess of book value. 
D) Parent's revenues less expenses for its own operations plus the equity from subsidiary's earnings less subsidiary dividends. 
E) None of these answer choices are correct.

Question 15

On January 1, 2020, Hemingway Co. acquired all of the common stock of Crotec Corp. For 2020, Crotec earned net income of $375,000 and paid dividends of $200,000. Amortization of the patent allocation that was included in the acquisition was $8,000.How much difference would there have been in Hemingway's income with regard to the effect of the investment, between using the equity method or using the initial value method of internal recordkeeping?

Accepted Answer

A) $8,000. 
B) $167,000. 
C) $175,000. 
D) $200,000. 
E) $375,000.

Question 16

Scott Co. paid $2,800,000 to acquire all of the common stock of Dawn Corp. on January 1, 2020. Dawn's reported earnings for 2020 totaled $512,000, and it paid $160,000 in dividends during the year. The amortization of allocations related to the investment was $28,000. Scott's net income, not including the investment, was $3,310,000, and it paid dividends of $950,000.What is the amount of consolidated net income for the year 2020?

Accepted Answer

A) $3,150,000. 
B) $3,282,000. 
C) $3,310,000. 
D) $3,794,000. 
E) $3,822,000.

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 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 18

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 amount would be represented as the subsidiary's Building in a consolidation at December 31, 2022, assuming the book value of the building at that date is still $200,000?

Accepted Answer

A) $200,000. 
B) $285,000. 
C) $290,000. 
D) $295,000. 
E) $300,000.

Question 19

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 buildings that would be reported in a December 31, 2020, consolidated balance sheet.

Accepted Answer

A) $1,200. 
B) $1,280. 
C) $1,520. 
D) $1,600. 
E) $1,680.

Question 20

On January 1, 2020, Hemingway Co. acquired all of the common stock of Crotec Corp. For 2020, Crotec earned net income of $375,000 and paid dividends of $200,000. Amortization of the patent allocation that was included in the acquisition was $8,000.How much difference would there have been in Hemingway's income with regard to the effect of the investment, between using the equity method or using the partial equity method of internal recordkeeping?

Accepted Answer