Question 1

On June 30, 2006, Purdom Corporation acquired 80% of the outstanding common stock of Sudan Company. On the date of the business combination, identifiable net assets of Sudan with current fair values differing from carrying amounts were as follows:
  Complete the following working paper for consolidated balance sheet of Purdom Corporation and subsidiary. Do not prepare a working paper elimination in journal entry format; however, explain the elimination on the working paper. Disregard income taxes.

Accepted Answer

(a)
Answer  Explanation of elimination:
(a) To eliminate intercompany investment and equity accounts of subsidiary.
*{($230,000 - $160,000) - [($300,000 x 0.80) - $200,000] = $30,000}

Question 2

Punt Corporation acquired a controlling interest in Saye Company for cash. The separate balance sheet of Punt and the consolidated balance sheet immediately after the business combination were as follows: 
  Plant assets of Saye Company were undervalued by $15,000 on the date of the business combination; the remainder of Punt's cost was assigned to goodwill. The retained earnings of Saye on the date of the business combination amounted to $37,000.
a. Prepare the separate balance sheet of Saye Company on the date of the business combination.
b. What percentage of the common stock of Saye was acquired by Punt?
c. Prepare the working paper elimination (in journal entry format) for Punt Corporation and subsidiary on the date of the business combination.

Accepted Answer

a.
  b.  c.

Question 3

Goodwill recognized in a business combination of a parent company and a partially owned subsidiary is attributable to the subsidiary.

Accepted Answer

A) True 
 B)False  False

Question 4

Only the balance sheet is consolidated on the date of a business combination of a parent company and subsidiary.

Accepted Answer

A) True 
 B)False

Question 5

On May 31, 2006, Ping Corporation paid $300,000, including direct out-of-pocket costs of the business combination, for 82% of the outstanding common stock of Spring Company, which became a subsidiary. Differences between current fair values and carrying amounts of identifiable net assets of Spring Company on May 31, 2006, were limited to the following:
  Complete the following working paper for consolidated balance sheet of Ping Corporation and subsidiary. Do not prepare a working paper elimination in journal entry format; however, explain the elimination on the working paper. Disregard income taxes.
  Explanation of elimination: (a)

Accepted Answer

The answer of On May 31, 2006, Ping Corporation paid...

Question 6

On March 31, 2006, Preston Corporation acquired for cash at $25 a share all 300,000 shares of the outstanding common stock of Sexton Company. Out-of-pocket costs of the business combination may be disregarded. Sexton's balance sheet on March 31, 2006, had net assets of $6,000,000. Additionally, the current fair value of Preston's plant assets on March 31, 2006, was $800,000 in excess of carrying amount. The amount to be shown for the balance sheet caption "Goodwill" in the March 31, 2006, consolidated balance sheet of Preston Corporation and its wholly owned subsidiary, Sexton Company, is:

Accepted Answer

A)   $0
B)   $700,000
C)   $800,000
D)   $1,500,000
E)   Some other amount

Question 7

In a business combination resulting in a parent company-subsidiary relationship, differences between current fair values and carrying amounts of the subsidiary's identifiable net assets on the date of the combination are:

Accepted Answer

A)   Disregarded
B)   Entered in the accounting records of the subsidiary
C)   Accounted for in appropriately titled ledger accounts in the parent company's accounting records
D)   Provided in a working paper elimination
E)   Accounted for in some other manner

Question 8

Under the parent company concept of consolidated financial statements, the minority interest in net assets of a subsidiary is displayed as a liability.

Accepted Answer

A) True 
 B)False

Question 9

A parent company's journal entries to record a business combination with a subsidiary do not include debits and credits to recognize the assets and liabilities of the subsidiary.

Accepted Answer

A) True 
 B)False

Question 10

On October 31, 2006, Portugal Corporation acquired 80% of the outstanding common stock of Spain Company in a business combination. Total cost of the investment, including direct out-of-pocket costs, was $480,000. The working paper elimination (in journal entry format, explanation omitted) for Portugal Corporation and Subsidiary on October 31, 2006, was as follows:  If minority interest in net assets of subsidiary had been reflected at carrying amount, rather than at current fair value, of the subsidiary's identifiable net assets, the credit to Minority Interest in Net Assets of Subsidiary in the foregoing elimination would have been:

Accepted Answer

A)   $90,000
B)   $120,000
C)   $60,000
D)   Some other amount

Question 11

In a business combination that establishes a parent company-subsidiary affiliation, the subsidiary prepares journal entries on the date of the combination to increase the carrying amounts of its net assets to current fair values.

Accepted Answer

A) True 
 B)False

Question 12

A parent company's control of a subsidiary may be achieved both directly and indirectly, the latter through another subsidiary of the parent.

Accepted Answer

A) True 
 B)False

Question 13

Consolidated financial statements are intended primarily for the use of:

Accepted Answer

A)   Stockholders of the parent company
B)   Taxing authorities
C)   Management of the parent company
D)   Creditors of the parent company

Question 14

In a business combination resulting in a parent company-subsidiary affiliation, the parent company's Investment in Subsidiary Common Stock ledger account is not closed, as it is in other types of business combinations.

Accepted Answer

A) True 
 B)False

Question 15

Consolidated financial statements emphasize the legal form of the parent company-subsidiary relationship.

Accepted Answer

A) True 
 B)False

Question 16

A subsidiary's paid-in capital ledger accounts always are eliminated in the preparation of a consolidated balance sheet for the parent company and the subsidiary.

Accepted Answer

A) True 
 B)False

Question 17

Pangborn Corporation paid $840,000 (including direct out-of-pocket costs) for 70% of the outstanding common stock of Siddon Company on September 30, 2006, the end of Pangborn's fiscal year. Included in the working paper elimination (in journal entry format) for Pangborn Corporation and subsidiary on that date were the following:
 If Pangborn had inferred a current fair value for 100% of Siddon's total net assets from the $840,000 cost, Goodwill and Minority Interest in Net Assets of Subsidiary in the September 30, 2006, working paper elimination would have been, respectively:

Accepted Answer

A)   $100,000 and $330,000
B)   $70,000 and $360,000
C)   $49,000 and $231,000
D)   $100,000 and $360,000
E)   Some other amounts

Question 18

A widely used method of accounting for business combinations involving a partially owned subsidiary values goodwill at the amount acquired by the parent company.

Accepted Answer

A) True 
 B)False

Question 19

The Financial Accounting Standards Board requires push-down accounting in the separate financial statements of subsidiaries.

Accepted Answer

A) True 
 B)False

Question 20

The terms  and variable  interest entity are synonymous.

Accepted Answer

A) True 
 B)False

Exam 6: Consolidated Financial Statements: on Date of Business Combination

Goodwill recognized in a business combination of a parent company and a partially owned subsidiary is attributable to the subsidiary.

Only the balance sheet is consolidated on the date of a business combination of a parent company and subsidiary.

In a business combination resulting in a parent company-subsidiary relationship, differences between current fair values and carrying amounts of the subsidiary's identifiable net assets on the date of the combination are:

Under the parent company concept of consolidated financial statements, the minority interest in net assets of a subsidiary is displayed as a liability.

A parent company's journal entries to record a business combination with a subsidiary do not include debits and credits to recognize the assets and liabilities of the subsidiary.

In a business combination that establishes a parent company-subsidiary affiliation, the subsidiary prepares journal entries on the date of the combination to increase the carrying amounts of its net assets to current fair values.

A parent company's control of a subsidiary may be achieved both directly and indirectly, the latter through another subsidiary of the parent.

Consolidated financial statements are intended primarily for the use of:

In a business combination resulting in a parent company-subsidiary affiliation, the parent company's Investment in Subsidiary Common Stock ledger account is not closed, as it is in other types of business combinations.

Consolidated financial statements emphasize the legal form of the parent company-subsidiary relationship.

A subsidiary's paid-in capital ledger accounts always are eliminated in the preparation of a consolidated balance sheet for the parent company and the subsidiary.

A widely used method of accounting for business combinations involving a partially owned subsidiary values goodwill at the amount acquired by the parent company.

The Financial Accounting Standards Board requires push-down accounting in the separate financial statements of subsidiaries.

The terms and variable interest entity are synonymous.