Question 1

On January 1,2016,Poole Company purchased 75% of the common stock of Swimmer Company.Separate balance sheet data for the companies at the combination date are given below:  Determine below what the consolidated balance would be for each of the requested accounts on January 2,2016.
What amount of goodwill will be reported?

Accepted Answer

A)  $26,667.
B)  $20,000.
C)  $42,000.
D)  $86,667. A

Question 2

When the value implied by the acquisition price is below the fair value of the identifiable net assets the residual amount will be negative (bargain acquisition).Explain the difference in accounting for bargain acquisition between past accounting and proposed accounting requirements.

Accepted Answer

In the past,when a bargain acquisition occurred some of the acquired assets were reduced below their fair values.Long-lived assets were recorded at fair market value less an adjustment for the bargain.In addition,an extraordinary gain was recorded in certain instances.
Under proposed accounting requirements,no assets are reduced below fair value.Instead the credit (negative)balance will be shown as an ordinary gain in the year of acquisition.

Question 3

On January 1,2016,Pilsner Company acquired an 80% interest in Smalley Company for $3,600,000.On that date,Smalley Company had retained earnings of $800,000 and common stock of $2,800,000.The book values of assets and liabilities were equal to fair values except for the following:
  The equipment had an estimated remaining useful life of 8 years.One-half of the inventory was sold in 2016 and the remaining half was sold in 2017.Smalley Company reported net income of $240,000 in 2016 and $300,000 in 2017.No dividends were declared or paid in either year.Pilsner Company uses the cost method to record its investment in Smalley Company.
Required:
Prepare,in general journal form,the workpaper eliminating entries necessary in the consolidated statements workpaper for the year ending December 31,2017.

Accepted Answer

The answer of On January 1,2016,Pilsner Company acquired an 80%...

Question 4

In a business combination accounted for as an acquisition,how should the excess of fair value of identifiable net assets acquired over implied value be treated?

Accepted Answer

A)  Amortized as a credit to income over a period not to exceed forty years.
B)  Amortized as a charge to expense over a period not to exceed forty years.
C)  Amortized directly to retained earnings over a period not to exceed forty years.
D)  Recognized as an ordinary gain in the year of acquisition.

Question 5

Simple Company,a 70%-owned subsidiary of Punter Corporation,reported net income of $240,000 and paid dividends totaling $90,000 during Year 3.Year 3 amortization of differences between current fair values and carrying amounts of Simple's identifiable net assets at the date of the business combination was $45,000.The noncontrolling interest in net income of Simple for Year 3 was:

Accepted Answer

A)  $58,500.
B)  $13,500.
C)  $27,000.
D)  $72,000.

Question 6

Under push down accounting,the workpaper entry to eliminate the investment account includes a:

Accepted Answer

A)  debit to Goodwill.
B)  debit to Revaluation Capital.
C)  credit to Revaluation Capital.
D)  debit to Revaluation Assets.

Question 7

On January 1,2016,Pamela Company purchased 75% of the common stock of Snicker Company.Separate balance sheet data for the companies at the combination date are given below:  Determine below what the consolidated balance would be for each of the requested accounts on January 2,2016.
What amount of inventory will be reported?

Accepted Answer

A)  $125,000
B)  $132,750
C)  $139,250
D)  $144,000

Question 8

On January 1,2016,Pamela Company purchased 75% of the common stock of Snicker Company.Separate balance sheet data for the companies at the combination date are given below:  Determine below what the consolidated balance would be for each of the requested accounts on January 2,2016.
What is the amount of total assets?

Accepted Answer

A)  $921,000
B)  $1,185,000
C)  $1,525,000
D)  $1,195,000

Question 9

Dividends declared by a subsidiary are eliminated against dividend income recorded by the parent under the:

Accepted Answer

A)  partial equity method.
B)  equity method.
C)  cost method.
D)  equity and partial equity methods.

Question 10

On January 1,2016,Lester Company purchased 70% of Stork Corporation's $5 par common stock for $600,000.The book value of Stork net assets was $640,000 at that time.The fair value of Stork's identifiable net assets were the same as their book value except for equipment that was $40,000 in excess of the book value.In the January 1,2016,consolidated balance sheet,goodwill would be reported at:

Accepted Answer

A)  $152,000.
B)  $177,143.
C)  $80,000.
D)  $0.

Question 11

Pennington Corporation purchased 80% of the voting common stock of Stafford Corporation for $3,200,000 cash on January 1,2016.On this date the book values and fair values of Stafford Corporation's assets and liabilities were as follows:
  Required:
Prepare a schedule showing how the difference between Stafford Corporation's implied value and the book value of the net assets acquired should be allocated.

Accepted Answer

The answer of Pennington Corporation purchased 80% of the voting...

Question 12

On January 1,2016,Poole Company purchased 75% of the common stock of Swimmer Company.Separate balance sheet data for the companies at the combination date are given below:  Determine below what the consolidated balance would be for each of the requested accounts on January 2,2016.
What is the amount of total assets?

Accepted Answer

A)  $1,626,667.
B)  $1,566,667
C)  $1,980,000.
D)  $2,006,667.

Question 13

If the fair value of the subsidiary's identifiable net assets exceeds both the book value and the value implied by the purchase price,the workpaper entry to eliminate the investment account:

Accepted Answer

A)  debits Excess of Fair Value over Implied Value.
B)  debits Difference Between Implied and Fair Value.
C)  debits Difference Between Implied and Book Value.
D)  credits Difference Between Implied and Book Value.

Question 14

Under which set of circumstances would it not be appropriate to assume the value the noncontrolling shares is the same as the controlling shares?

Accepted Answer

A)  The acquisition is for less than 100% of the subsidiary.
B)  The fair value of the noncontrolling shares can be inferred from the value implied by the acquisition price.
C)  Active market prices for shares not obtained by the acquirer imply a different value.
D)  The amount of the "control premium" cannot be determined .

Question 15

On January 1,2016,Pamela Company purchased 75% of the common stock of Snicker Company.Separate balance sheet data for the companies at the combination date are given below:  Determine below what the consolidated balance would be for each of the requested accounts on January 2,2016.
What amount of goodwill will be reported?

Accepted Answer

A)  ($20,000) 
B)  ($25,000) 
C)  $25,000
D)  $0

Question 16

Plain Corporation acquired a 75% interest in Swampy Company on January 1,2016,for $2,000,000.The book value and fair value of the assets and liabilities of Swampy Company on that date were as follows:
  The property and equipment had a remaining life of 6 years on January 1,2016,and the deferred charge was being amortized over a period of 5 years from that date.Common stock was $1,500,000 and retained earnings was $900,000 on January 1,2016.Plain Company records its investment in Swampy Company using the cost method.
Required:
Prepare,in general journal form,the December 31,2016,workpaper entries necessary to:
A.Eliminate the investment account.
B.Allocate and amortize the difference between implied and book value.

Accepted Answer

The answer of Plain Corporation acquired a 75% interest in...

Question 17

Pulman Company acquired 90% of the stock of Spectrum Company for $6,300,000 on January 1,2016.On this date,the fair value of the assets and liabilities of Spectrum Company was equal to their book value except for the inventory and equipment accounts.The inventory had a fair value of $2,300,000 and a book value of $1,900,000.The equipment had a fair value of $3,300,000 and a book value of $2,800,000.
The balances in Spectrum Company's capital stock and retained earnings accounts on the date of acquisition were $3,700,000 and $1,900,000,respectively.
Required:
In general journal form,prepare the entries on Spectrum Company's books to record the effect of the pushed down values implied by the acquisition of its stock by Pulman Company assuming that:
A values are allocated on the basis of the fair value of Spectrum Company as a whole imputed from the transaction.
B values are allocated on the basis of the proportional interest acquired by Pulman Company.

Accepted Answer

The answer of Pulman Company acquired 90% of the stock...

Question 18

In preparing consolidated working papers,beginning retained earnings of the parent company will be adjusted in years subsequent to acquisition with an elimination entry whenever:

Accepted Answer

A)  a noncontrolling interest exists.
B)  it does not reflect the equity method.
C)  the cost method has been used only.
D)  the complete equity method is in use.

Question 19

Primer Company acquired an 80% interest in SealCoat Company on January 1,2016,for $450,000 cash when SealCoat Company had common stock of $250,000 and retained earnings of $250,000.All excess was attributable to plant assets with a 10-year life.SealCoat Company made $50,000 in 2016 and paid no dividends.Primer Company's separate income in 2016 was $625,000.The controlling interest in consolidated net income for 2016 is:

Accepted Answer

A)  $675,000.
B)  $665,000.
C)  $660,000.
D)  $625,000.

Question 20

When the implied value exceeds the aggregate fair values of identifiable net assets,the residual difference is accounted for as:

Accepted Answer

A)  excess of implied over fair value.
B)  a deferred credit.
C)  difference between implied and fair value.
D)  goodwill.

Exam 5: Allocation and Depreciation of Differences Between Implied and Book Values