1

Question 1

consolidated NI

Answer 1

Parent NI
+ Sub NI from the date of acquisition
+- effects of the inter-company transaction
- Deb. on difference between FV and carrying value of sub
- impairment loss in good will
= consolidated NI

Question 2

RE

Answer 2

beg RE ( parent)
+ consolidated NI
- parent dividend for the entire year
= Ending RE

Question 3

How should the acquirer recognize a bargain purchase in a business acquisition?

Answer 3

A bargain purchase is recognized in the consolidated financial statements as an ordinary gain at the acquisition date. A bargain purchase occurs when the net of the acquisition-date fair values of identifiable assets acquired and liabilities assumed exceeds the sum of the acquisition-date fair values of the consideration transferred, any noncontrolling interest recognized, and any previously held equity interest in the acquiree.

Question 4

An example of a protective right is:

Answer 4

Protective rights protect the party holding the rights without giving that party a controlling financial interest and include rights such as veto rights and the ability to remove the entity with the power to direct the activities of the VIE. Participating rights include the ability to block or participate in the actions of the reporting entity with the power to direct the VIE activities and include examples such as establishing operating procedures and controlling the management overseeing the investee policies.

Question 5

A 70%-owned subsidiary company declares and pays a cash dividend. What effect does the dividend have on the retained earnings and noncontrolling interest balances in the parent company’s consolidated balance sheet?

Answer 5

This answer is correct. Retained earnings reported on the consolidated balance sheet would equal the acquiree’s retained earnings balance at year-end. Thus, even though declaration and payment of a dividend by the acquiree would decrease the acquiree’s retained earnings, there would be no effect on consolidated retained earnings. Noncontrolling interest equals the fair value of the noncontrolling shares of stock of the acquisition. This balance would be increased by the noncontrolling interests percentage of income of the acquiree, and decreased by the noncontrolling interest’s share of the dividend of acquiree. This balance would include subsidiary retained earnings which would have been decreased by the declaration and payment of dividends. Thus, noncontrolling interest would also have decreased and this answer is correct.