Advanced Accounting Joe Ben Hoyle 13rd Edition – Test Bank

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Advanced Accounting Joe Ben Hoyle 13rd Edition – Test Bank

 Sample Questions

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Chapter 02

Consolidation of Financial Information

 

 

Multiple Choice Questions

 

1. At the date of an acquisition which is not a bargain purchase, the acquisition method

 

 

1. consolidates the subsidiary’s assets at fair value and the liabilities at book value.

 

1. consolidates all subsidiary assets and liabilities at book value.

 

1. consolidates all subsidiary assets and liabilities at fair value.

 

1. consolidates current assets and liabilities at book value, long-term assets and liabilities at fair value.

 

1. consolidates the subsidiary’s assets at book value and the liabilities at fair value.

 

 

2. In an acquisition where control is achieved, how would the land accounts of the parent and the land accounts of the subsidiary be combined?

 

 

 

 

1. Option A

 

1. Option B

 

1. Option C

 

1. Option D

 

1. Option E

 

 

3. Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue to exist as a separate corporation. Entries for the consolidation of Lisa and Victoria would be recorded in

 

 

1. a worksheet.

 

1. Lisa’s general journal.

 

1. Victoria’s general journal.

 

1. Victoria’s secret consolidation journal.

 

1. the general journals of both companies.

 

 

4. Using the acquisition method for a business combination, goodwill is generally defined as:

 

 

1. Cost of the investment less the subsidiary’s book value at the beginning of the year.

 

1. Cost of the investment less the subsidiary’s book value at the acquisition date.

 

1. Cost of the investment less the subsidiary’s fair value at the beginning of the year.

 

1. Cost of the investment less the subsidiary’s fair value at acquisition date.

 

1. is no longer allowed under federal law.

 

 

5. Direct combination costs and stock issuance costs are often incurred in the process of making a controlling investment in another company. How should those costs be accounted for in a pre-2009 purchase transaction?

 

 

 

 

1. Option A

 

1. Option B

 

1. Option C

 

1. Option D

 

1. Option E

 

 

6. How are direct and indirect costs accounted for when applying the acquisition method for a business combination?

 

 

 

 

1. Option A

 

1. Option B

 

1. Option C

 

1. Option D

 

1. Option E

 

 

7. What is the primary accounting difference between accounting for when the subsidiary is dissolved and when the subsidiary retains its incorporation?

 

 

1. If the subsidiary is dissolved, it will not be operated as a separate division.

 

1. If the subsidiary is dissolved, assets and liabilities are consolidated at their book values.

 

1. If the subsidiary retains its incorporation, there will be no goodwill associated with the acquisition.

 

1. If the subsidiary retains its incorporation, assets and liabilities are consolidated at their book values.

 

1. If the subsidiary retains its incorporation, the consolidation is not formally recorded in the accounting records of the acquiring company.

 

 

8. According to GAAP, the pooling of interest method for business combinations

 

 

1. Is preferred to the purchase method.

 

1. Is allowed for all new acquisitions.

 

2001. Is no longer allowed for business combinations after June 30, 2001.

 

2001. Is no longer allowed for business combinations after December 31, 2001.

 

1. Is only allowed for large corporate mergers like Exxon and Mobil.

 

 

9. An example of a difference in types of business combination is:

 

 

1. A statutory merger can only be effected by an asset acquisition while a statutory consolidation can only be effected by a capital stock acquisition.

 

1. A statutory merger can only be effected by a capital stock acquisition while a statutory consolidation can only be effected by an asset acquisition.

 

1. A statutory merger requires dissolution of the acquired company while a statutory consolidation does not require dissolution.

 

1. A statutory consolidation requires dissolution of the acquired company while a statutory merger does not require dissolution.

 

1. Both a statutory merger and a statutory consolidation can only be effected by an asset acquisition but only a statutory consolidation requires dissolution of the acquired company.

 

 

10. Acquired in-process research and development is considered as

 

 

1. a definite-lived asset subject to amortization.

 

1. a definite-lived asset subject to testing for impairment.

 

1. an indefinite-lived asset subject to amortization.

 

1. an indefinite-lived asset subject to testing for impairment.

 

1. a research and development expense at the date of acquisition.

 

 

11. Which one of the following is a characteristic of a business combination accounted for as an acquisition?

 

 

1. The combination must involve the exchange of equity securities only.

 

1. The transaction establishes an acquisition fair value basis for the company being acquired.

 

1. The two companies may be about the same size, and it is difficult to determine the acquired company and the acquiring company.

 

1. The transaction may be considered to be the uniting of the ownership interests of the companies involved.

 

1. The acquired subsidiary must be smaller in size than the acquiring parent.

 

 

12. Which one of the following is a characteristic of a business combination that is accounted for as an acquisition?

 

 

1. Fair value only for items received by the acquirer can enter into the determination of the acquirer’s accounting valuation of the acquired company.

 

1. Fair value only for the consideration transferred by the acquirer can enter into the determination of the acquirer’s accounting valuation of the acquired company.

 

1. Fair value for the consideration transferred by the acquirer as well as the fair value of items received by the acquirer can enter into the determination of the acquirer’s accounting valuation of the acquired company.

 

1. Fair value for only consideration transferred and identifiable assets received by the acquirer can enter into the determination of the acquirer’s accounting valuation of the acquired company.

 

1. Only fair value of identifiable assets received enters into the determination of the acquirer’s accounting valuation of the acquired company.

 

 

13. A statutorymerger is a(n)

 

 

1. business combination in which only one of the two companies continues to exist as a legal corporation.

 

1. business combination in which both companies continue to exist.

 

1. acquisition of a competitor.

 

1. acquisition of a supplier or a customer.

 

1. legal proposal to acquire outstanding shares of the target’s stock.

 

 

14. How are stockissuancecosts and directcombinationcosts treated in a business combination which is accounted for as an acquisition when the subsidiary will retain its incorporation?

 

 

1. Stock issuance costs are a part of the acquisition costs, and the direct combination costs are expensed.

 

1. Direct combination costs are a part of the acquisition costs, and the stock issuance costs are a reduction to additional paid-in capital.

 

1. Direct combination costs are expensed and stock issuance costs are a reduction to additional paid-in capital.

 

1. Both are treated as part of the acquisition consideration transferred.

 

1. Both are treated as a reduction to additional paid-in capital.

 

 

15. Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. The book value and fair value of Vicker’s accounts on that date (prior to creating the combination) follow, along with the book value of Bullen’s accounts:

 

 

 

Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $47 fair value to obtain all of Vicker’s outstanding stock. In this acquisition transaction, how much goodwill should be recognized?

 

 

1. $144,000.

 

1. $104,000.

 

1. $64,000.

 

1. $60,000.

 

1. $0.

 

 

16. Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. The book value and fair value of Vicker’s accounts on that date (prior to creating the combination) follow, along with the book value of Bullen’s accounts:

 

 

 

Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $42 fair value for all of the outstanding stock of Vicker. What is the consolidated balance for Land as a result of this acquisition transaction?

 

 

1. $460,000.

 

1. $510,000.

 

1. $500,000.

 

1. $520,000.

 

1. $490,000.

 

 

17. Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. The book value and fair value of Vicker’s accounts on that date (prior to creating the combination) follow, along with the book value of Bullen’s accounts:

 

 

 

Assume that Bullen issued 12,000 shares of common stock with a $5 par value and a $42 fair value for all of the outstanding shares of Vicker. What will be the consolidated Additional Paid-In Capital and Retained Earnings (January 1, 2013 balances) as a result of this acquisition transaction?

 

 

1. $60,000 and $490,000.

 

1. $60,000 and $250,000.

 

1. $380,000 and $250,000.

 

1. $464,000 and $250,000.

 

1. $464,000 and $420,000.

 

 

18. Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. The book value and fair value of Vicker’s accounts on that date (prior to creating the combination) follow, along with the book value of Bullen’s accounts:

 

 

 

Assume that Bullen issued preferred stock with a par value of $240,000 and a fair value of $500,000 for all of the outstanding shares of Vicker in an acquisition business combination. What will be the balance in the consolidated Inventory and Land accounts?

 

 

1. $440,000, $496,000.

 

1. $440,000, $520,000.

 

1. $425,000, $505,000.

 

1. $400,000, $500,000.

 

1. $427,000, $510,000.

 

 

19. Bullen Inc. acquired 100% of the voting common stock of Vicker Inc. on January 1, 2013. The book value and fair value of Vicker’s accounts on that date (prior to creating the combination) follow, along with the book value of Bullen’s accounts:

 

 

 

Assume that Bullen paid a total of $480,000 in cash for all of the shares of Vicker. In addition, Bullen paid $35,000 to a group of attorneys for their work in arranging the combination to be accounted for as an acquisition. What will be the balance in consolidated goodwill?

 

 

1. $0.

 

1. $20,000.

 

1. $35,000.

 

1. $55,000.

 

1. $65,000.

 

 

20. Prior to being united in a business combination, Botkins Inc. and Volkerson Corp. had the following stockholders’ equity figures:

 

 

 

Botkins issued 56,000 new shares of its common stock valued at $3.25 per share for all of the outstanding stock of Volkerson.

 

Assume that Botkins acquired Volkerson on January 1, 2012. At what amount did Botkins record the investment in Volkerson?

 

 

1. $56,000.

 

1. $182,000.

 

1. $209,000.

 

1. $261,000.

 

1. $312,000.

 

 

21. Prior to being united in a business combination, Botkins Inc. and Volkerson Corp. had the following stockholders’ equity figures:

 

 

 

Botkins issued 56,000 new shares of its common stock valued at $3.25 per share for all of the outstanding stock of Volkerson.

 

Assume that Botkins acquired Volkerson on January 1, 2012. Immediately afterwards, what is consolidated Common Stock?

 

 

1. $456,000.

 

1. $402,000.

 

1. $274,000.

 

1. $276,000.

 

1. $330,000.

 

 

22. Chapel Hill Company had common stock of $350,000 and retained earnings of $490,000. Blue Town Inc. had common stock of $700,000 and retained earnings of $980,000. On January 1, 2013, Blue Town issued 34,000 shares of common stock with a $12 par value and a $35 fair value for all of Chapel Hill Company’s outstanding common stock. This combination was accounted for as an acquisition. Immediately after the combination, what was the total consolidated net assets?

 

 

1. $2,520,000.

 

1. $1,190,000.

 

1. $1,680,000.

 

1. $2,870,000.

 

1. $2,030,000.

 

 

23. Which of the following is a not a reason for a business combination to take place?

 

 

1. Cost savings through elimination of duplicate facilities.

 

1. Quick entry for new and existing products into domestic and foreign markets.

 

1. Diversification of business risk.

 

1. Vertical integration.

 

1. Increase in stock price of the acquired company.

 

 

24. Which of the following statements is true regarding a statutory merger?

 

 

1. The original companies dissolve while remaining as separate divisions of a newly created company.

 

1. Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring company.

 

1. The acquired company dissolves as a separate corporation and becomes a division of the acquiring company.

 

1. The acquiring company acquires the stock of the acquired company as an investment.

 

1. A statutory merger is no longer a legal option.

 

 

25. Which of the following statements is true regarding a statutory consolidation?

 

 

1. The original companies dissolve while remaining as separate divisions of a newly created company.

 

1. Both companies remain in existence as legal corporations with one corporation now a subsidiary of the acquiring company.

 

1. The acquired company dissolves as a separate corporation and becomes a division of the acquiring company.

 

1. The acquiring company acquires the stock of the acquired company as an investment.

 

1. A statutory consolidation is no longer a legal option.

 

 

26. In a transaction accounted for using the acquisition method where consideration transferred exceeds book value of the acquired company, which statement is true for the acquiring company with regard to its investment?

 

 

1. Net assets of the acquired company are revalued to their fair values and any excess of consideration transferred over fair value of net assets acquired is allocated to goodwill.

 

1. Net assets of the acquired company are maintained at book value and any excess of consideration transferred over book value of net assets acquired is allocated to goodwill.

 

1. Acquired assets are revalued to their fair values. Acquired liabilities are maintained at book values. Any excess is allocated to goodwill.

 

1. Acquired long-term assets are revalued to their fair values. Any excess is allocated to goodwill.

 

 

27. In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true?

 

 

1. Negative goodwill is recorded.

 

1. A deferred credit is recorded.

 

1. A gain on bargain purchase is recorded.

 

1. Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as a deferred credit.

 

1. Long-term assets and liabilities of the acquired company are reduced in proportion to their fair values. Any excess is recorded as an extraordinary gain.

 

 

28. Which of the following statements is true regarding the acquisition method of accounting for a business combination?

 

 

1. Net assets of the acquired company are reported at their fair values.

 

1. Net assets of the acquired company are reported at their book values.

 

1. Any goodwill associated with the acquisition is reported as a development cost.

 

1. The acquisition can only be effected by a mutual exchange of voting common stock.

 

1. Indirect costs of the combination reduce additional paid-in capital.

 

 

29. Which of the following statements is true?

File: Chapter 04 – Consolidated Financial Statements and Outside Ownership

 

Multiple Choice:

 

[QUESTION]

1. For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except:
2. A) Identifiable assets acquired, at fair value.
3. B) Liabilities assumed, at book value.
4. C) Non-controlling interest, at fair value.
5. D) Goodwill, or a gain from bargain purchase.
6. E) None of these choices is correct.

Answer: B

Learning Objective: 04-02

Topic: Acquisition-date―Consolidated balance sheet

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

REFERENCE: 04-01

When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of $70,000 and a fair value of $100,000.

 

[QUESTION]

REFER TO: 04-01

2. What amount should have been reported for the land in a consolidated balance sheet at the acquisition date?
3. A) $ 52,500.
4. B) $ 70,000.
5. C) $ 75,000.
6. D) $ 92,500.
7. E) $100,000.

Answer: E

Learning Objective: 04-02

Topic: Acquisition-date―Consolidated balance sheet

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: $100,000 FV of Land at Acquisition

 

[QUESTION]

REFER TO: 04-01

3. What is the total amount of excess land allocation at the acquisition date?
4. A) $
5. B) $30,000.
6. C) $22,500.
7. D) $25,000.
8. E) $17,500.

Answer: B

Learning Objective: 04-05

Topic: Acquisition-date―Fair value allocation

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: FV $100,000 – BV $70,000 = $30,000

 

[QUESTION]

REFER TO: 04-01

4. What is the amount of excess land allocation attributed to the controlling interest at the acquisition date?
5. A) $
6. B) $30,000.
7. C) $22,500.
8. D) $25,000.
9. E) $17,500.

Answer: C

Learning Objective: 04-05

Topic: Acquisition-date―Fair value allocation

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: FV – BV ($30,000) × .75 = $22,500

 

[QUESTION]

REFER TO: 04-01

5. What is the amount of excess land allocation attributed to the noncontrolling interest at the acquisition date?
6. A) $
7. B) $30,000.
8. C) $22,500.
9. D) $ 7,500.
10. E) $17,500.

Answer: D

Learning Objective: 04-05

Topic: Acquisition-date―Fair value allocation

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: FV – BV ($30,000) × .25 = $7,500

 

[QUESTION]

6. Which of the following methods is not used to value a noncontrolling interest under circumstances where a control premium is applied to determine the appropriate value for such interest?
7. A) Valuation models based on subsidiary discounted cash flows.
8. B) Valuation models based on subsidiary residual income projections.
9. C) Comparison with comparable investments.
10. D) The application of a safe harbor discount rate.
11. E) Fair value based on market trades.

Answer: D

Learning Objective: 04-02

Learning Objective: 04-07

Topic: Acquisition-date―Fair value of subsidiary

Topic: Goodwill―With control premium

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

REFERENCE: 04-02

Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000.  The fair value of Float’s net assets was $1,850,000, and the book value was $1,500,000.  The noncontrolling interest shares of Float Corp. are not actively traded.

 

[QUESTION]

REFER TO: 04-02

7. What is the total amount of goodwill recognized at the date of acquisition?
8. A) $150,000.
9. B) $250,000.
10. C) $
11. D) $120,000.
12. E) $170,000.

Answer: A

Learning Objective: 04-03

Topic: Goodwill―No control premium

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: FV $1,850,000 – FV of 100% of Float’s Stock based on Purchase Price  ($1,600,000 / .80) $2,000,000 = ($150,000) Goodwill

 

[QUESTION]

REFER TO: 04-02

8. What amount of goodwill should be attributed to Perch at the date of acquisition?
9. A) $150,000.
10. B) $250,000.
11. C) $
12. D) $120,000.
13. E) $170,000.

Answer: D

Learning Objective: 04-03

Topic: Goodwill―No control premium

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: (Purchase Price for 80%) $1,600,000 – (FV $1,850,000 × .80 = $1,480,000) = $120,000

 

[QUESTION]

REFER TO: 04-02

9. What amount of goodwill should be attributed to the noncontrolling interest at the date of acquisition?
10. A) $
11. B) $ 20,000.
12. C) $ 30,000.
13. D) $100,000.
14. E) $120,000.

Answer: C

Learning Objective: 04-03

Topic: Goodwill―No control premium

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: $150,000 Goodwill × .20 = $30,000 to Noncontrolling Interest

 

[QUESTION]

REFER TO: 04-02

10. What is the dollar amount of noncontrolling interest that should appear in a consolidated balance sheet prepared at the date of acquisition?
11. A) $350,000.
12. B) $300,000.
13. C) $400,000.
14. D) $370,000.
15. E) $0.

Answer: C

Learning Objective: 04-02

Learning Objective: 04-05

Learning Objective: 04-06

Topic: Acquisition-date―Consolidated balance sheet

Topic: Acquisition-date―Fair value of subsidiary

Topic: Noncontrolling interest―Calculate balance

Topic: Noncontrolling interest―Statement presentation

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: FV of Stock at Acquisition Date for 100% ($1,600,000 / .80) $2,000,000 × .20 = $400,000

 

[QUESTION]

REFER TO: 04-02

11. What is the dollar amount of Float Corp.’s net assets that would be represented in a consolidated balance sheet prepared at the date of acquisition?
12. A) $1,600,000.
13. B) $1,480,000.
14. C) $1,200,000.
15. D) $1,780,000.
16. E) $1,850,000.

Answer: E

Learning Objective: 04-02

Learning Objective: 04-05

Topic: Acquisition-date―Consolidated balance sheet

Topic: Acquisition-date―Fair value allocation

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: FV of Assets Acquired = $1,850,000

 

[QUESTION]

REFER TO: 04-02

12. What is the dollar amount of fair value over book value differences attributed to Perch at the date of acquisition?
13. A) $120,000.
14. B) $150,000.
15. C) $280,000.
16. D) $350,000.
17. E) $370,000.

Answer: C

Learning Objective: 04-05

Topic: Acquisition-date―Fair value allocation

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: FV $1,850,000 – BV $1,500,000 = $350,000 × .80 = $280,000

 

REFERENCE: 04-03

Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 2019.  During 2019, Harbor had revenues of $2,500,000 and expenses of $2,000,000.  The amortization of fair value allocations totaled $60,000 in 2019. Not including its investment in Harbor, Femur Co. had its own revenues of $4,500,000 and expenses of $3,000,000 for the year 2019.

 

[QUESTION]

REFER TO: 04-03

13. The noncontrolling interest’s share of the earnings of Harbor Corp. for 2019 is calculated to be
14. A) $132,000.
15. B) $150,000.
16. C) $168,000.
17. D) $160,000.
18. E) $0.

Answer: A

Learning Objective: 04-04

Topic: Consolidated net income―Allocation

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: Revenue $2,500,000 – Expenses $2,000,000 = $500,000 – $60,000 = $440,000 × .30 = $132,000

 

[QUESTION]

REFER TO: 04-03

14. What amount would Femur Co. report as consolidated net income for 2019?
15. A) $440,000.
16. B) $500,000.
17. C) $1,500,000.
18. D) $1,940,000.
19. E) $2,000,000.

Answer: D

Learning Objective: 04-04

Topic: Consolidated net income

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: Femur Net Income (Femur Revenue $4,500,000 less Femur Expenses $3,000,000 = $1,500,000) + Harbor Net Income (Harbor Revenue $2,500,000 – Harbor Expenses $2,000,000 – Amortizations for Excess Fair Value over Book Value = $500,000 – $60,000 = $440,000) = $1,500,000 + $440,000 = $1,940,000

 

[QUESTION]

REFER TO: 04-03

15. What amount of consolidated net income for 2019 should be allocated to Femur’s controlling interest in Harbor?
16. A) $ 582,000
17. B) $1,050,000
    C) $1,358,000
    D) $1,808,000
    E) $2,140,000

Answer: D

Learning Objective: 04-04

Topic: Consolidated net income―Allocation

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: Total Consolidated Net Income ($1,940,000 – 132,000 to NCI) = $1,808,000

 

REFERENCE: 04-04

Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2019.  For 2019, Kailey reported revenues of $810,000 and expenses of $630,000, not including its investment in Denber, and all reflected evenly throughout the year.  The annual amount of amortization related to this acquisition was $15,000.

 

[QUESTION]

REFER TO: 04-04

16. In consolidation, the total amount of expenses related to Kailey, and to Denber’s acquisition of Kailey, for 2019 is determined to be
17. A) $153,750.
18. B) $161,250.
19. C) $205,000.
20. D) $210,000.
21. E) $215,000.

Answer: E

Learning Objective: 04-08

Topic: Midyear acquisition

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: Expenses $630,000 × 4/12 = $210,000; Amortization $15,000 × 4/12 = $5,000 =  $215,000

 

[QUESTION]

REFER TO: 04-04

17. What is the effect of including Kailey in consolidated net income for 2019?
18. A) $31,000.
19. B) $33,000.
20. C) $55,000.
21. D) $60,000.
22. E) $39,000.

Answer: C

Learning Objective: 04-08

Topic: Midyear acquisition

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: Revenue $810,000 – Expenses $630,000 = Income $180,000 × 4/12 = $60,000 – Annual Amortization ($15,000 × 4/12) = $55,000

 

[QUESTION]

REFER TO: 04-04

18. What is the amount of Kailey’s net income to the controlling interest for 2019?
19. A) $31,000.
20. B) $33,000.
21. C) $55,000.
22. D) $60,000.
23. E) $39,000.

Answer: B

Learning Objective: 04-08

Topic: Midyear acquisition

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: Revenue $810,000 – Expenses $630,000 = Income $180,000 × 4/12 = $60,000 – Annual Amortization ($15,000 × 4/12) = $55,000 × .60 = $33,000

 

[QUESTION]

REFER TO: 04-04

19. What is the amount of the noncontrolling interest’s share of Kailey’s income for 2019?
20. A) $22,000.
21. B) $24,000.
22. C) $48,000.
23. D) $66,000.
24. E) $72,000.

Answer: A

Learning Objective: 04-08

Topic: Midyear acquisition

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: Total Income for September-December = $55,000 – Controlling Interest Portion $33,000 = $22,000. Revenue $810,000 – Expenses $630,000 = Income $180,000 × 4/12 = $60,000 – Annual Amortization ($15,000 × 4/12) = $55,000 × .40 = $22,000

 

 

[QUESTION]

20. MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in an acquisition that resulted in the recognition of goodwill. Nomes owned a piece of land that cost $250,000 but was worth $600,000 at the date of acquisition.  What value would be attributed to this land in a consolidated balance sheet at the date of acquisition?

1. A) $250,000.
2. B) $150,000.
3. C) $600,000.
4. D) $360,000.
5. E) $460,000.

Answer: C

Learning Objective: 04-02

Topic: Acquisition-date―Consolidated balance sheet

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: FV of the Land $600,000

 

[QUESTION]

21. Kordel Inc. acquired 75% of the outstanding common stock of Raxston Corp. Raxston currently owes Kordel $500,000 for inventory acquired over the past few months.  In preparing consolidated financial statements, what amount of Raxston’s liability should be eliminated?
22. A) $375,000
23. B) $125,000
24. C) $300,000
25. D) $500,000
26. E) $0.

Answer: D

Learning Objective: 04-05

Topic: Worksheet procedures

Difficulty: 1 Easy

Blooms: Understand

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: BV & FV of the Existing Receivable $500,000

 

REFERENCE: 04-05

Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2019 when Park’s book value was $560,000.  The Royce stock was not actively traded.  On the date of acquisition, Park had equipment (with a ten-year life) that was undervalued in the financial records by $140,000.  One year later, the two companies provided the selected amounts shown below. Additionally, no dividends have been paid.

[QUESTION]

REFER TO: 04-05

22. What amount of consolidated net income for 2020 is attributable to Royce’s controlling interest?
23. A) $686,000.
24. B) $560,000.
25. C) $644,000.
26. D) $635,600.
27. E) $691,600.

Answer: D

Learning Objective: 04-04

Topic: Consolidated net income―Allocation

Difficulty:  2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: [Parent’s Income ($1,260,000 – $700,000 = $560,000)] + [Sub’s Income ($560,000 – $420,000) × .60 = $84,000] – [Excess Equipment Amortization for 2020 ($140,000 / 10) × .60 = $8,400] = $635,600

 

[QUESTION]

REFER TO: 04-05

23. What is the noncontrolling interest’s share of the subsidiary’s net income for the year ended December 31, 2020 and what is the ending balance of the noncontrolling interest in the subsidiary at December 31, 2020?
24. A) $56,000 and $280,000.
25. B) $50,400 and $218,400.
26. C) $56,000 and $224,000.
27. D) $56,000 and $336,000.
28. E) $50,400 and $330,400.

Answer: E

Learning Objective: 04-04

Learning Objective: 04-05

Topic: Consolidated net income―Allocation

Topic: Noncontrolling interest―Calculate balance

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: [Sub’s Income ($560,000 – $420,000) × .40 = $56,000] – [Excess Equipment Amortization for 2020 ($140,000 / 10) × .40 = $5,600] = $50,400

[Noncontrolling Interest at Acquisition (FV $700,000 × .40) = $280,000] + [Noncontrolling Interest 2020 Income $56,000] – [Excess Equipment Amortization ($140,000 / 10) × .40] = $330,400

 

[QUESTION]

REFER TO: 04-05

24. What is the consolidated balance of the Equipment account at December 31, 2020?
25. A) $644,400.
26. B) $784,000.
27. C) $719,600.
28. D) $770,000.
29. E) $775,600.

Answer: D

Learning Objective: 04-05

Topic: Consolidated totals―Individual items

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: [Parent’s Equipment $364,000] + [Sub’s Equipment $280,000] + [Fair value allocation less one year of  Amortization $140,000 – $14,000] = $770,000

 

REFERENCE: 04-06

On January 1, 2019, Palk Corp. and Spraz Corp. had condensed balance sheets as follows:

 

 

On January 2, 2019, Palk borrowed the entire $84,000 it needed to acquire 80% of the outstanding common shares of Spraz.  Shares of Spraz are not actively traded on the market. The loan was to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2019.  The excess consideration transferred over the underlying book value of the acquired net assets was allocated 60% to inventory and 40% to goodwill.

 

[QUESTION]

REFER TO: 04-06

25. What amount represents consolidated current assets at January 2, 2019?
26. A) $127,000.
27. B) $129,800.
28. C) $143,800.
29. D) $148,000.
30. E) $135,400.

Answer: D

Learning Objective: 04-02

Learning Objective: 04-05

Topic: Acquisition-date―Consolidated balance sheet

Topic: Acquisition-date―Fair value allocation

Topic: Consolidated totals―Individual items

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: [Parent’s Current Assets $99,000] + [Sub’s Current Assets $28,000] + [Excess Consideration to Inventory ($105,000 – $70,000 = $35,000 × .60) $21,000] = $148,000

 

[QUESTION]

REFER TO: 04-06

26. What is the amount attributable to consolidated noncurrent assets at January 2, 2019?
27. A) $195,000.
28. B) $192,200.
29. C) $186,600.
30. D) $181,000.
31. E) $169,800.

Answer: A

Learning Objective: 04-02

Learning Objective: 04-03

Learning Objective: 04-05

Topic: Acquisition-date―Consolidated balance sheet

Topic: Goodwill―No control premium

Topic: Consolidated totals―Individual items

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: [Parent’s Non-Current Assets $125,000] + [Sub’s Non-Current Assets $56,000] + [Excess Consideration to Goodwill ($105,000 – $70,000 = $35,000 × .40) $14,000] = $195,000

 

[QUESTION]

REFER TO: 04-06

27. What are the total consolidated current liabilities at January 2, 2019?
28. A) $53,200.
29. B) $56,000.
30. C) $64,400.
31. D) $42,000.
32. E) $70,000.

Answer: C

Learning Objective: 04-02

Learning Objective: 04-05

Topic: Acquisition-date―Consolidated balance sheet

Topic: Consolidated totals―Individual items

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: [Parent’s Current Liabilities $42,000] + [Sub’s Current Liabilities $14,000] + [Current Portion of Acquisition Loan ($84,000 / 10) = $8,400] = $64,400

 

[QUESTION]

REFER TO: 04-06

28. What is consolidated stockholders’ equity at January 2, 2019?
29. A) $112,000.
30. B) $133,000.
31. C) $168,000.
32. D) $182,000.
33. E) $203,000.

Answer: B

Learning Objective: 04-02

Learning Objective: 04-05

Learning Objective: 04-06

Topic: Acquisition-date―Consolidated balance sheet

Topic: Consolidated totals―Individual items

Topic: Noncontrolling interest―Statement presentation

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: Parent’s Equity $112,000 + Noncontrolling Interest $21,000 = $133,000

 

[QUESTION]

29. In measuring the noncontrolling interest immediately following the date of acquisition, which of the following would not be indicative of the value attributed to the noncontrolling interest?
30. A) Fair value based on stock trades of the acquired company.
31. B) Subsidiary cash flows discounted to present value.
32. C) Book value of subsidiary net assets.
33. D) Projections of residual income.
34. E) Consideration transferred by the parent company that implies a total subsidiary value.

Answer: C

Learning Objective: 04-02

Topic: Acquisition-date―Fair value of subsidiary

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

[QUESTION]

30. When a parent uses the equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is false at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?
31. A) Parent company net income equals controlling interest in consolidated net income.
32. B) Parent company retained earnings equals consolidated retained earnings.
33. C) Parent company total assets equals consolidated total assets.
34. D) Parent company dividends equals consolidated dividends.
35. E) Goodwill is not recorded on the parent’s books.

Answer: C

Learning Objective: 04-04

Learning Objective: 04-05

Topic: Consolidated net income―Allocation

Topic: Investment account balance―Equity method

Topic: Worksheet procedures

Difficulty: 2 Medium

Blooms: Analyze

AACSB: Analytical Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

[QUESTION]

31. When a parent uses the initial value method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?
32. A) Parent company net income equals consolidated net income.
33. B) Parent company retained earnings equals consolidated retained earnings.
34. C) Parent company total assets equals consolidated total assets.
35. D) Parent company dividends equal consolidated dividends.
36. E) Goodwill is recorded on the parent’s books.

Answer: D

Learning Objective: 04-05

Topic: Initial value or Partial equity accounting

Topic: Worksheet procedures

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

[QUESTION]

32. When a parent uses the partial equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?
33. A) Parent company net income equals consolidated net income.
34. B) Parent company retained earnings equals consolidated retained earnings.
35. C) Parent company total assets equals consolidated total assets.
36. D) Parent company dividends equal consolidated dividends.
37. E) Goodwill is recorded on the parent’s books.

Answer: D

Learning Objective: 04-05

Topic: Initial value or Partial equity accounting

Topic: Worksheet procedures

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

[QUESTION]

33. In a step acquisition, which of the following statements is false?
34. A) The acquisition method views a step acquisition essentially the same as a single step acquisition.
35. B) Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year.
36. C) Income from subsidiary is computed for the entire year for a new purchase acquired during the year.
37. D) Obtaining control through a step acquisition is a significant measurement event.
38. E) Pre-acquisition earnings are not included in the consolidated income statement.

Answer: C

Learning Objective: 04-09

Topic: Step acquisition―Additional shares post-control

Topic: Step acquisition―Resulting in control

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

[QUESTION]

34. Which of the following statements is false regarding multiple acquisitions of a subsidiary’s existing common stock?
35. A) The parent recognizes a larger percent of subsidiary income.
36. B) A step acquisition resulting in control may result in a parent recognizing a gain on revaluation.
37. C) The book value of the subsidiary will increase.
38. D) The parent’s percent ownership in subsidiary will increase.
39. E) Noncontrolling interest in subsidiary’s net income will decrease.

Answer: C

Learning Objective: 04-09

Topic: Step acquisition―Resulting in control

Topic: Step acquisition―Additional shares post-control

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

[QUESTION]

35. When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true?
36. A) Income from subsidiary is not recognized until there is an entire year of consolidated operations.
37. B) Income from subsidiary is recognized from date of acquisition to year-end.
38. C) Excess cost over acquisition value is recognized at the beginning of the fiscal year.
39. D) No goodwill can be recognized.
40. E) Income from subsidiary is recognized for the entire year.

Answer: B

Learning Objective: 04-08

Topic: Midyear acquisition

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

[QUESTION]

36. When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, which of the following statements is true of the subsidiary with respect to the presentation of consolidated financial statement information?
37. A) Pre-acquisition earnings are deducted from consolidated revenues and expenses.
38. B) Pre-acquisition earnings are added to consolidated revenues and expenses.
39. C) Pre-acquisition earnings are deducted from the beginning consolidated stockholders’ equity.
40. D) Pre-acquisition earnings are added to the beginning consolidated stockholders’ equity.
41. E) Pre-acquisition earnings are ignored in the consolidated income statement.

Answer: E

Learning Objective: 04-08

Topic: Midyear acquisition

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

[QUESTION]

37. When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false?
38. A) If majority control is still maintained, consolidated financial statements are still required.
39. B) If majority control is not maintained but significant influence exists, the equity method to account for the investment is still used but consolidated financial statements are not required.
40. C) If majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are still required.
41. D) If majority control is not maintained and significant influence no longer exists, a prospective change in accounting principle to the fair value method is required.
42. E) A gain or loss calculation must be prepared if control is lost.

Answer: C

Learning Objective: 04-10

Topic: Sale of shares―Control maintained

Topic: Sale of shares―Control lost

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

[QUESTION]

38. All of the following statements regarding the sale of subsidiary shares are true except which of the following?
39. A) The use of specific identification based on serial number is acceptable.
40. B) The use of the FIFO assumption is acceptable.
41. C) The use of the averaging assumption is acceptable.
42. D) The use of specific LIFO assumption is acceptable.
43. E) The parent company must determine whether consolidation is still appropriate for the remaining shares owned.

Answer: D

Learning Objective: 04-10

Topic: Sale of shares―Control maintained

Topic: Sale of shares―Control lost

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

[QUESTION]

39. Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition method for accounting for business combinations?
40. A) If control continues, the difference between selling price and acquisition value is recorded as a realized gain or loss.
41. B) If control continues, the difference between selling price and acquisition value is an unrealized gain or loss.
42. C) If control continues, the difference between selling price and carrying value is recorded as an adjustment to additional paid-in capital.
43. D) If control continues, the difference between selling price and carrying value is recorded as a realized gain or loss.
44. E) If control continues, the difference between selling price and carrying value is recorded as an adjustment to retained earnings.

Answer: C

Learning Objective: 04-10

Topic: Sale of shares―Control maintained

Difficulty: 2 Medium

Blooms: Remember

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

[QUESTION]

40. Jax Company used the acquisition method when it acquired its investment in Saxton Company. Jax now sells some of its shares of Saxton such that neither control nor significant influence exists.  Which of the following statements is true?
41. A) The difference between selling price and acquisition value is recorded as a realized gain or loss.
42. B) The difference between selling price and acquisition value is recorded as an unrealized gain or loss.
43. C) The difference between selling price and carrying value is recorded as a realized gain or loss.
44. D) The difference between selling price and carrying value is recorded as an unrealized gain or loss.
45. E) The difference between selling price and carrying value is recorded as an adjustment to retained earnings.

Answer: C

Learning Objective: 04-10

Topic: Sale of shares―Control lost

Difficulty: 2 Medium

Blooms: Understand

AACSB: Reflective Thinking

AICPA BB: Critical Thinking

AICPA FN: Measurement

 

[QUESTION]

41. Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on September 1, 2019, and an additional 10% on January 1, 2020. Total annual amortization of $6,000 relates to the first acquisition. George reports the following figures for 2020:

 

Revenues	$500,000
Expenses	400,000
Retained earnings, 1/1/20	300,000
Dividends paid	50,000
Common stock	200,000

 

Without regard for this investment, Keefe independently earns $300,000 in net income during 2020.

All net income is earned evenly throughout the year.

What is the controlling interest in consolidated net income for 2020?

1. A) $380,000.
2. B) $375,200.
3. C) $375,800.
4. D) $376,000.
5. E) $400,000.

Answer: B

Learning Objective: 04-09

Topic: Step acquisition―Additional shares post-control

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: Keefe owns 80% of George for the entire year of 2020. Keefe’s share of consolidated net income: 100,000 sub income – 6,000 amortization = 94,000 × .80= 75,200 from Sub + 300,000 internally generated

 

REFERENCE: 04-07

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash.  This amount is reflective of Hogan’s total acquisition-date fair value.  Hogan’s stockholders’ equity consisted of common stock of $160,000 and retained earnings of $80,000.  An analysis of Hogan’s net assets revealed the following:

 

Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.

 

[QUESTION]

REFER TO: 04-07

42. The acquisition value attributable to the noncontrolling interest at January 1, 2019 is:
43. A) $23,400.
44. B) $24,000.
45. C) $24,900.
46. D) $26,000.
47. E) $20,000.

Answer: D

Learning Objective: 04-02

Topic: Acquisition-date―Fair value of subsidiary

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: $234,000 / .90 = $260,000 × .10 = $26,000

 

[QUESTION]

REFER TO: 04-07

43. In consolidation at January 1, 2019, what adjustment is necessary for Hogan’s Buildings account?
44. A) $2,000 increase.
45. B) $2,000 decrease.
46. C) $1,800 increase.
47. D) $1,800 decrease.
48. E) No change.

Answer: B

Learning Objective: 04-05

Topic: Acquisition-date―Fair value allocation

Topic: Worksheet procedures

Difficulty: 1 Easy

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking

AICPA FN: Measurement

Feedback: FV $8,000 – BV $10,000 = <$2,000> Reduction

 

[QUESTION]

REFER TO: 04-07

44. In consolidation at December 31, 2019, what adjustment is necessary for Hogan’s Buildings account?
45. A) $1,620 increase.
46. B) $1,620 decrease.
47. C) $1,800 increase.
48. D) $1,800 decrease.
49. E) No adjustment is necessary.

Answer: D

Learning Objective: 04-05

Topic: Acquisition-date―Fair value allocation

Topic: Amortization of fair value allocations

Topic: Worksheet procedures

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA BB: Critical Thinking