Chapter 3: Consolidations - Subsequent to the Date of Acquisition Flashcards
1
Q
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? A. Goodwill. B. Equipment. C. Investment in Subsidiary. D. Common Stock. E. Additional Paid-In Capital.
A
C. Investment in Subsidiary.
2
Q
Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?
A. Initial value or book value.
B. Initial value, lower-of-cost-or-market-value, or equity.
C. Initial value, equity, or partial equity.
D. Initial value, equity, or book value.
E. Initial value, lower-of-cost-or-market-value, or partial equity.
A
C. Initial value, equity, or partial equity.
3
Q
Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment?
A. The amount of consolidated net income.
B. Total assets on the consolidated balance sheet.
C. Total liabilities on the consolidated balance sheet.
D. The balance in the investment account on the parent’s books.
E. The amount of consolidated cost of goods sold.
A
D. The balance in the investment account on the parent’s books.
4
Q
Under the partial equity method, the parent recognizes income when
A. dividends are received from the investee.
B. dividends are declared by the investee.
C. the related expense has been incurred.
D. the related contract is signed by the subsidiary.
E. it is earned by the subsidiary.
A
E. it is earned by the subsidiary.
5
Q
Push-down accounting is concerned with the
A. impact of the purchase on the subsidiary’s financial statements.
B. recognition of goodwill by the parent.
C. correct consolidation of the financial statements.
D. impact of the purchase on the separate financial statements of the parent.
E. recognition of dividends received from the subsidiary.
A
A. impact of the purchase on the subsidiary’s financial statements.
6
Q
Racer Corp. acquired all of the common stock of Tangiers Co. in 2009. Tangiers maintained its incorporation. Which of Racer’s account balances would vary between the equity method and the initial value method?
A. Goodwill, Investment in Tangiers Co., and Retained Earnings.
B. Expenses, Investment in Tangiers Co., and Equity in Subsidiary Earnings.
C. Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.
D. Common Stock, Goodwill, and Investment in Tangiers Co.
E. Expenses, Goodwill, and Investment in Tangiers Co.
A
C. Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.
7
Q
How does the partial equity method differ from the equity method?
A. In the total assets reported on the consolidated balance sheet.
B. In the treatment of dividends.
C. In the total liabilities reported on the consolidated balance sheet.
D. Under the partial equity method, subsidiary income does not increase the balance in the parent’s investment account.
E. Under the partial equity method, the balance in the investment account is not decreased by amortization on allocations made in the acquisition of the subsidiary.
A
E. Under the partial equity method, the balance in the investment account is not decreased by amortization on allocations made in the acquisition of the subsidiary.
8
Q
Jansen Inc. acquired all of the outstanding common stock of Merriam Co. on January 1, 2010, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Jansen reported net income of $70,000 in 2010 and $50,000 in 2011 and paid $22,000 in dividends each year. Merriam reported net income of $40,000 in 2010 and $47,000 in 2011 and paid $10,000 in dividends each year. What is the Investment in Merriam Co. balance on Jansen's books as of December 31, 2011, if the equity method has been applied? A. $286,000. B. $295,000. C. $276,000. D. $344,000. E. $324,000.
A
A. $286,000.
9
Q
Velway Corp. acquired Joker Inc. on January 1, 2010. The parent paid more than the fair value of the subsidiary's net assets. On that date, Velway had equipment with a book value of $500,000 and a fair value of $640,000. Joker had equipment with a book value of $400,000 and a fair value of $470,000. Joker decided to use push-down accounting. Immediately after the acquisition, what Equipment amount would appear on Joker's separate balance sheet and on Velway's consolidated balance sheet, respectively? A. $400,000 and $900,000 B. $400,000 and $970,000 C. $470,000 and $900,000 D. $470,000 and $970,000 E. $470,000 and $1,040,000
A
D. $470,000 and $970,000
10
Q
Parrett Corp. acquired one hundred percent of Jones Inc. on January 1, 2009, at a price in excess of the subsidiary's fair value. On that date, Parrett's equipment (ten-year life) had a book value of $360,000 but a fair value of $480,000. Jones had equipment (ten-year life) with a book value of $240,000 and a fair value of $350,000. Parrett used the partial equity method to record its investment in Jones. On December 31, 2011, Parrett had equipment with a book value of $250,000 and a fair value of $400,000. Jones had equipment with a book value of $170,000 and a fair value of $320,000. What is the consolidated balance for the Equipment account as of December 31, 2011? A. $387,000. B. $497,000. C. $508.000. D. $537,000. E. $570,000.
A
B. $497,000.
11
Q
On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop’s assets, liabilities, and stockholders’ equity accounts:
BV FV Current Assets 120,000 120,000 Land 72,000 192,000 Bld (20yr Life) 240,000 268,000 Equmt (10yrLife) 540,000 516,000 Current Liabties 24,000 24,000 LT Liabties 120,000 120,000 Common St 228,000 APIC 384,000 RE 216,000
Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year.
The 2010 total amortization of allocations is calculated to be A. $4,000. B. $6,400. C. $(2,400). D. $(1,000). E. $3,800.
A
D. $(1,000).
12
Q
On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop’s assets, liabilities, and stockholders’ equity accounts:
BV FV Current Assets 120,000 120,000 Land 72,000 192,000 Bld (20yr Life) 240,000 268,000 Equmt (10yrLife) 540,000 516,000 Current Liabties 24,000 24,000 LT Liabties 120,000 120,000 Common St 228,000 APIC 384,000 RE 216,000
Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year.
In Cale's accounting records, what amount would appear on December 31, 2010 for equity in subsidiary earnings? A. $77,000. B. $79,000. C. $125,000. D. $127,000. E. $81,800.
A
D. $127,000.
13
Q
On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop’s assets, liabilities, and stockholders’ equity accounts:
BV FV Current Assets 120,000 120,000 Land 72,000 192,000 Bld (20yr Life) 240,000 268,000 Equmt (10yrLife) 540,000 516,000 Current Liabties 24,000 24,000 LT Liabties 120,000 120,000 Common St 228,000 APIC 384,000 RE 216,000
Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year.
What is the balance in Cale's investment in subsidiary account at the end of 2010? A. $1,099,000. B. $1,020,000. C. $1,096,200. D. $1,098,000. E. $1,144,400.
A
A. $1,099,000.
14
Q
On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop’s assets, liabilities, and stockholders’ equity accounts:
BV FV Current Assets 120,000 120,000 Land 72,000 192,000 Bld (20yr Life) 240,000 268,000 Equmt (10yrLife) 540,000 516,000 Current Liabties 24,000 24,000 LT Liabties 120,000 120,000 Common St 228,000 APIC 384,000 RE 216,000
Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year.
At the end of 2010, the consolidation entry to eliminate Cale's accrual of Kaltop's earnings would include a credit to Investment in Kaltop Co. for A. $124,400. B. $126,000. C. $127,000. D. $76,400. E. $0.
A
C. $127,000.
15
Q
On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop’s assets, liabilities, and stockholders’ equity accounts:
BV FV Current Assets 120,000 120,000 Land 72,000 192,000 Bld (20yr Life) 240,000 268,000 Equmt (10yrLife) 540,000 516,000 Current Liabties 24,000 24,000 LT Liabties 120,000 120,000 Common St 228,000 APIC 384,000 RE 216,000
Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year.
If Cale Corp. had net income of $444,000 in 2010, exclusive of the investment, what is the amount of consolidated net income? A. $569,000. B. $570,000. C. $571,000. D. $566,400. E. $444,000.
A
C. $571,000.
16
Q
On January 1, 2010, Franel Co. acquired all of the common stock of Hurlem Corp. For 2010, Hurlem earned net income of $360,000 and paid dividends of $190,000. Amortization of the patent allocation that was included in the acquisition was $6,000.
How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the initial value method of internal recordkeeping? A. $190,000. B. $360,000. C. $164,000. D. $354,000. E. $150,000.
A
C. $164,000.
17
Q
On January 1, 2010, Franel Co. acquired all of the common stock of Hurlem Corp. For 2010, Hurlem earned net income of $360,000 and paid dividends of $190,000. Amortization of the patent allocation that was included in the acquisition was $6,000.
How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the partial equity method of internal recordkeeping? A. $170,000. B. $354,000. C. $164,000. D. $6,000. E. $174,000.
A
D. $6,000.
18
Q
Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2010. Janex’s reported earnings for 2010 totaled $432,000, and it paid $120,000 in dividends during the year. The amortization of allocations related to the investment was $24,000. Cashen’s net income, not including the investment, was $3,180,000, and it paid dividends of $900,000.
On the consolidated financial statements for 2010, what amount should have been shown for Equity in Subsidiary Earnings? A. $432,000. B. $-0-. C. $408,000. D. $120,000. E. $288,000.
A
B. $-0-.
19
Q
Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2010. Janex’s reported earnings for 2010 totaled $432,000, and it paid $120,000 in dividends during the year. The amortization of allocations related to the investment was $24,000. Cashen’s net income, not including the investment, was $3,180,000, and it paid dividends of $900,000.
On the consolidated financial statements for 2010, what amount should have been shown for consolidated dividends? A. $900,000. B. $1,020,000. C. $876,000. D. $996,000. E. $948,000.
A
A. $900,000.
20
Q
Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2010. Janex’s reported earnings for 2010 totaled $432,000, and it paid $120,000 in dividends during the year. The amortization of allocations related to the investment was $24,000. Cashen’s net income, not including the investment, was $3,180,000, and it paid dividends of $900,000.
What is the amount of consolidated net income for the year 2010? A. $3,180,000. B. $3,612,000. C. $3,300,000. D. $3,588,000. E. $3,420,000.
A
D. $3,588,000.
21
Q
Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2009, for $372,000. Equipment with a ten-year life was undervalued on Tysk’s financial records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2009 and $216,000 in 2010. Dividends of $70,000 were paid in each of these two years. Selected account balances as of December 31, 2011, for the two companies follow.
Jans Tysk Revenues 1,080,000 840,000 Expens 480,000 600,000 Invst. Income Not Given 0 RE 1/1/11 840,000 600,000 Dividends paid 132,000 70,000
If the partial equity method had been applied, what was 2011 consolidated net income? A. $840,000. B. $768,400. C. $822,000. D. $240,000. E. $600,000.
A
C. $822,000.
22
Q
Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2009, for $372,000. Equipment with a ten-year life was undervalued on Tysk’s financial records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2009 and $216,000 in 2010. Dividends of $70,000 were paid in each of these two years. Selected account balances as of December 31, 2011, for the two companies follow.
Jans Tysk Revenues 1,080,000 840,000 Expense 480,000 600,000 Invst. Income Not Given 0 RE 1/1/11 840,000 600,000 Dividends paid 132,000 70,000
If the equity method had been applied, what would be the Investment in Tysk Corp. account balance within the records of Jans at the end of 2011? A. $612,100. B. $744,000. C. $774,150. D. $372,000. E. $844,150.
A
B. $744,000.
23
Q
Red Co. acquired 100% of Green, Inc. on January 1, 2010. On that date, Green had inventory with a book value of $42,000 and a fair value of $52,000. This inventory had not yet been sold at December 31, 2010. Also, on the date of acquisition, Green had a building with a book value of $200,000 and a fair value of $390,000. Green had equipment with a book value of $350,000 and a fair value of $280,000. The building had a 10-year remaining useful life and the equipment had a 5-year remaining useful life. How much total expense will be in the consolidated financial statements for the year ended December 31, 2010 related to the acquisition allocations of Green? A. $43,000. B. $33,000. C. $5,000. D. $15,000. E. 0.
A
D. $15,000.
24
Q
All of the following are acceptable methods to account for a majority-owned investment in subsidiary except A. The equity method. B. The initial value method. C. The partial equity method. D. The fair-value method. E. Book value method.
A
D. The fair-value method.
25
Under the equity method of accounting for an investment,
A. The investment account remains at initial value.
B. Dividends received are recorded as revenue.
C. Goodwill is amortized over 20 years.
D. Income reported by the subsidiary increases the investment account.
E. Dividends received increase the investment account.
D. Income reported by the subsidiary increases the investment account.
26
Under the partial equity method of accounting for an investment,
A. The investment account remains at initial value.
B. Dividends received are recorded as revenue.
C. The allocations for excess fair value allocations over book value of net assets at date of acquisition are applied over their useful lives to reduce the investment account.
D. Amortization of the excess of fair value allocations over book value is ignored in regard to the investment account.
E. Dividends received increase the investment account.
D. Amortization of the excess of fair value allocations over book value is ignored in regard to the investment account.
27
Under the initial value method, when accounting for an investment in a subsidiary,
A. Dividends received by the subsidiary decrease the investment account.
B. The investment account is adjusted to fair value at year-end.
C. Income reported by the subsidiary increases the investment account.
D. The investment account remains at initial value.
E. Dividends received are ignored.
D. The investment account remains at initial value.
28
According to GAAP regarding amortization of goodwill and other intangible assets, which of the following statements is true?
A. Goodwill recognized in consolidation must be amortized over 20 years.
B. Goodwill recognized in consolidation must be expensed in the period of acquisition.
C. Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment.
D. Goodwill recognized in consolidation can never be written off.
E. Goodwill recognized in consolidation must be amortized over 40 years.
C. Goodwill recognized in consolidation will not be amortized but subject to an annual test for impairment.
29
When a company applies the initial method in accounting for its investment in a subsidiary and the subsidiary reports income in excess of dividends paid, what entry would be made for a consolidation worksheet?
```
A. Retained Earnings
Inv. in Subsidiary
B. Inv. in Subsidiary
Retained Earnings
C. Inv. in Subsidiary
Equity in Subidiary's income
D. Equity in Subidiary's income
Inv. in Subsidiary
E. APIC
RE
```
B. Inv. in Subsidiary
| Retained Earnings
30
When a company applies the initial value method in accounting for its investment in a subsidiary and the subsidiary reports income less than dividends paid, what entry would be made for a consolidation worksheet?
```
A. Retained Earnings
Inv. in Subsidiary
B. Inv. in Subsidiary
Retained Earnings
C. Inv. in Subsidiary
Equity in Subidiary's income
D. Equity in Subidiary's income
Inv. in Subsidiary
E. RE
APIC
```
A. Retained Earnings
| Inv. in Subsidiary
31
When a company applies the partial equity method in accounting for its investment in a subsidiary and the subsidiary's equipment has a fair value greater than its book value, what consolidation worksheet entry is made in a year subsequent to the initial acquisition of the subsidiary?
```
A. Retained Earnings
Inv. in Subsidiary
B. Inv. in Subsidiary
Retained Earnings
C. Inv. in Subsidiary
Equity in Subidiary's income
D. Equity in Subidiary's income
Inv. in Subsidiary
E. RE
APIC
```
A. Retained Earnings
| Inv. in Subsidiary
32
When a company applies the partial equity method in accounting for its investment in a subsidiary and initial value, book values, and fair values of net assets acquired are all equal, what consolidation worksheet entry would be made?
```
A. Retained Earnings
Inv. in Subsidiary
B. Inv. in Subsidiary
Retained Earnings
C. Inv. in Subsidiary
Equity in Subidiary's income
D. Inv. in Subsidiary
APIC
E. No Entry is necessary
```
E. No Entry is necessary
33
When consolidating a subsidiary under the equity method, which of the following statements is true?
A. Goodwill is never recognized.
B. Goodwill required is amortized over 20 years.
C. Goodwill may be recorded on the parent company's books.
D. The value of any goodwill should be tested annually for impairment in value.
E. Goodwill should be expensed in the year of acquisition.
D. The value of any goodwill should be tested annually for impairment in value.
34
When consolidating a subsidiary under the equity method, which of the following statements is true with regard to the subsidiary subsequent to the year of acquisition?
A. All net assets are revalued to fair value and must be amortized over their useful lives.
B. Only net assets that had excess fair value over book value when acquired by the parent must be amortized over their useful lives.
C. All depreciable net assets are revalued to fair value at date of acquisition and must be amortized over their useful lives.
D. Only depreciable net assets that have excess fair value over book value must be amortized over their useful lives.
E. Only assets that have excess fair value over book value must be amortized over their useful lives.
C. All depreciable net assets are revalued to fair value at date of acquisition and must be amortized over their useful lives.
35
Which of the following statements is false regarding push-down accounting?
A. Push-down accounting simplifies the consolidation process.
B. Fewer worksheet entries are necessary when push-down accounting is applied.
C. Push-down accounting provides better information for internal evaluation.
D. Push-down accounting must be applied for all business combinations under a pooling of interests.
E. Push-down proponents argue that a change in ownership creates a new basis for subsidiary assets and liabilities.
D. Push-down accounting must be applied for all business combinations under a pooling of interests.
36
Which of the following is false regarding contingent consideration in business combinations?
A. Contingent consideration payable in cash is reported under liabilities.
B. Contingent consideration payable in stock shares is reported under stockholders' equity.
C. Contingent consideration is recorded because of its substantial probability of eventual payment.
D. The contingent consideration fair value is recognized as part of the acquisition regardless of whether eventual payment is based on future performance of the target firm or future stock price of the acquirer.
E. Contingent consideration is reflected in the acquirer's balance sheet at the present value of the potential expected future payment.
C. Contingent consideration is recorded because of its substantial probability of eventual payment.
37
Factors that should be considered in determining the useful life of an intangible asset include
A. Legal, regulatory, or contractual provisions.
B. The residual value of the asset.
C. The entity's expected use of the intangible asset.
D. The effects of obsolescence, competition, and technological change.
E. All of the above choices are used in determining the useful life of an intangible asset.
E. All of the above choices are used in determining the useful life of an intangible asset.
38
Consolidated net income using the equity method for an acquisition combination is computed as follows:
A. Parent company's income from its own operations plus the equity from subsidiary's income recorded by the parent.
B. Parent's reported net income.
C. Combined revenues less combined expenses less equity in subsidiary's income 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 income recorded by parent.
E. All of the above.
D. Parent's revenues less expenses for its own operations plus the equity from subsidiary's income recorded by parent.
39
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance;
Debit Credit
Cash 500
AR 600
Inventory 800
Land 900
Bld,net (5yr Life) 1,500
Equmt (2yrLife) 1,000
AP 400
LT Liabties (due 12/31/13) 1,800
Common St 1,000
APIC 600
RE 1,500
Total 5,300 5,300
Net Income & Dividends reported by Hurley for 2010 and 2011 follows:
2010 2011
Net income 100 120
Dividends 30 40
The fair value of Hurley's net assets that differ from their book values are listed below:
Fair Value
Inventory 900
Land 1,300
Bld,net (5yr Life) 1,200
Equmt (2yrLife) 1,250
LT Liabties 1,700
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.
```
Compute the consideration transferred in excess of book value acquired at January 1, 2010.
A. $150.
B. $700.
C. $2,200.
D. $550.
E. $2,900.
```
B. $700
40
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance;
Debit Credit
Cash 500
AR 600
Inventory 800
Land 900
Bld,net (5yr Life) 1,500
Equmt (2yrLife) 1,000
AP 400
LT Liabties (due 12/31/13) 1,800
Common St 1,000
APIC 600
RE 1,500
Total 5,300 5,300
Net Income & Dividends reported by Hurley for 2010 and 2011 follows:
2010 2011
Net income 100 120
Dividends 30 40
The fair value of Hurley's net assets that differ from their book values are listed below:
Fair Value
Inventory 900
Land 1,300
Bld,net (5yr Life) 1,200
Equmt (2yrLife) 1,250
LT Liabties 1,700
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.
```
Compute goodwill, if any, at January 1, 2010.
A. $150.
B. $250.
C. $700.
D. $1,200.
E. $550.
```
A. $150
41
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance;
Debit Credit
Cash 500
AR 600
Inventory 800
Land 900
Bld,net (5yr Life) 1,500
Equmt (2yrLife) 1,000
AP 400
LT Liabties (due 12/31/13) 1,800
Common St 1,000
APIC 600
RE 1,500
Total 5,300 5,300
Net Income & Dividends reported by Hurley for 2010 and 2011 follows:
2010 2011
Net income 100 120
Dividends 30 40
The fair value of Hurley's net assets that differ from their book values are listed below:
Fair Value
Inventory 900
Land 1,300
Bld,net (5yr Life) 1,200
Equmt (2yrLife) 1,250
LT Liabties 1,700
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.
```
Compute the amount of Hurley's inventory that would be reported in a January 1, 2010, consolidated balance sheet.
A. $800.
B. $100.
C. $900.
D. $150.
E. $0.
```
C. $900
42
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance;
Debit Credit
Cash 500
AR 600
Inventory 800
Land 900
Bld,net (5yr Life) 1,500
Equmt (2yrLife) 1,000
AP 400
LT Liabties (due 12/31/13) 1,800
Common St 1,000
APIC 600
RE 1,500
Total 5,300 5,300
Net Income & Dividends reported by Hurley for 2010 and 2011 follows:
2010 2011
Net income 100 120
Dividends 30 40
The fair value of Hurley's net assets that differ from their book values are listed below:
Fair Value
Inventory 900
Land 1,300
Bld,net (5yr Life) 1,200
Equmt (2yrLife) 1,250
LT Liabties 1,700
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.
```
Compute the amount of Hurley's buildings that would be reported in a December 31, 2010, consolidated balance sheet.
A. $1,560.
B. $1,260.
C. $1,440.
D. $1,160.
E. $1,140.
```
B. $1,260.
43
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance;
Debit Credit
Cash 500
AR 600
Inventory 800
Land 900
Bld,net (5yr Life) 1,500
Equmt (2yrLife) 1,000
AP 400
LT Liabties (due 12/31/13) 1,800
Common St 1,000
APIC 600
RE 1,500
Total 5,300 5,300
Net Income & Dividends reported by Hurley for 2010 and 2011 follows:
2010 2011
Net income 100 120
Dividends 30 40
The fair value of Hurley's net assets that differ from their book values are listed below:
Fair Value
Inventory 900
Land 1,300
Bld,net (5yr Life) 1,200
Equmt (2yrLife) 1,250
LT Liabties 1,700
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.
```
Compute the amount of Hurley's equipment that would be reported in a December 31, 2010, consolidated balance sheet.
A. $1,000.
B. $1,250.
C. $875.
D. $1,125.
E. $750.
```
D. $1,125
44
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance;
Debit Credit
Cash 500
AR 600
Inventory 800
Land 900
Bld,net (5yr Life) 1,500
Equmt (2yrLife) 1,000
AP 400
LT Liabties (due 12/31/13) 1,800
Common St 1,000
APIC 600
RE 1,500
Total 5,300 5,300
Net Income & Dividends reported by Hurley for 2010 and 2011 follows:
2010 2011
Net income 100 120
Dividends 30 40
The fair value of Hurley's net assets that differ from their book values are listed below:
Fair Value
Inventory 900
Land 1,300
Bld,net (5yr Life) 1,200
Equmt (2yrLife) 1,250
LT Liabties 1,700
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.
```
Compute the amount of total expenses reported in an income statement for the year ended December 31, 2010, in order to recognize acquisition-date allocations of fair value and book value differences,
A. $140.
B. $190.
C. $260.
D. $285.
E. $310.
```
B. $190
45
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance;
Debit Credit
Cash 500
AR 600
Inventory 800
Land 900
Bld,net (5yr Life) 1,500
Equmt (2yrLife) 1,000
AP 400
LT Liabties (due 12/31/13) 1,800
Common St 1,000
APIC 600
RE 1,500
Total 5,300 5,300
Net Income & Dividends reported by Hurley for 2010 and 2011 follows:
2010 2011
Net income 100 120
Dividends 30 40
The fair value of Hurley's net assets that differ from their book values are listed below:
Fair Value
Inventory 900
Land 1,300
Bld,net (5yr Life) 1,200
Equmt (2yrLife) 1,250
LT Liabties 1,700
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.
```
Compute the amount of Hurley's long-term liabilities that would be reported in a December 31, 2010, consolidated balance sheet.
A. $1,800.
B. $1,700.
C. $1,725.
D. $1,675.
E. $3,500.
```
C. $1,725
46
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance;
Debit Credit
Cash 500
AR 600
Inventory 800
Land 900
Bld,net (5yr Life) 1,500
Equmt (2yrLife) 1,000
AP 400
LT Liabties (due 12/31/13) 1,800
Common St 1,000
APIC 600
RE 1,500
Total 5,300 5,300
Net Income & Dividends reported by Hurley for 2010 and 2011 follows:
2010 2011
Net income 100 120
Dividends 30 40
The fair value of Hurley's net assets that differ from their book values are listed below:
Fair Value
Inventory 900
Land 1,300
Bld,net (5yr Life) 1,200
Equmt (2yrLife) 1,250
LT Liabties 1,700
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.
```
Compute the amount of Hurley's buildings that would be reported in a December 31, 2011, consolidated balance sheet.
A. $1,620.
B. $1,380.
C. $1,320.
D. $1,080.
E. $1,500.
```
C. $1,320
47
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance;
Debit Credit
Cash 500
AR 600
Inventory 800
Land 900
Bld,net (5yr Life) 1,500
Equmt (2yrLife) 1,000
AP 400
LT Liabties (due 12/31/13) 1,800
Common St 1,000
APIC 600
RE 1,500
Total 5,300 5,300
Net Income & Dividends reported by Hurley for 2010 and 2011 follows:
2010 2011
Net income 100 120
Dividends 30 40
The fair value of Hurley's net assets that differ from their book values are listed below:
Fair Value
Inventory 900
Land 1,300
Bld,net (5yr Life) 1,200
Equmt (2yrLife) 1,250
LT Liabties 1,700
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.
```
Compute the amount of Hurley's equipment that would be reported in a December 31, 2011, consolidated balance sheet.
A. $0.
B. $1,000.
C. $1,250.
D. $1,125.
E. $1,200.
```
B. $1,000.
48
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance;
Debit Credit
Cash 500
AR 600
Inventory 800
Land 900
Bld,net (5yr Life) 1,500
Equmt (2yrLife) 1,000
AP 400
LT Liabties (due 12/31/13) 1,800
Common St 1,000
APIC 600
RE 1,500
Total 5,300 5,300
Net Income & Dividends reported by Hurley for 2010 and 2011 follows:
2010 2011
Net income 100 120
Dividends 30 40
The fair value of Hurley's net assets that differ from their book values are listed below:
Fair Value
Inventory 900
Land 1,300
Bld,net (5yr Life) 1,200
Equmt (2yrLife) 1,250
LT Liabties 1,700
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.
```
Compute the amount of Hurley's land that would be reported in a December 31, 2011, consolidated balance sheet.
A. $900.
B. $1,300.
C. $400.
D. $1,450.
E. $2,200.
```
B. $1,300
49
Perry Company acquires 100% of the stock of Hurley Corporation on January 1, 2010, for $3,800 cash. As of that date Hurley has the following trial balance;
Debit Credit
Cash 500
AR 600
Inventory 800
Land 900
Bld,net (5yr Life) 1,500
Equmt (2yrLife) 1,000
AP 400
LT Liabties (due 12/31/13) 1,800
Common St 1,000
APIC 600
RE 1,500
Total 5,300 5,300
Net Income & Dividends reported by Hurley for 2010 and 2011 follows:
2010 2011
Net income 100 120
Dividends 30 40
The fair value of Hurley's net assets that differ from their book values are listed below:
Fair Value
Inventory 900
Land 1,300
Bld,net (5yr Life) 1,200
Equmt (2yrLife) 1,250
LT Liabties 1,700
Any excess of consideration transferred over fair value of net assets acquired is considered goodwill with an indefinite life. FIFO inventory valuation method is used.
```
Compute the amount of Hurley's long-term liabilities that would be reported in a December 31, 2011, consolidated balance sheet.
A. $1,700.
B. $1,800.
C. $1,650.
D. $1,750.
E. $3,500.
```
D. $1,750
50
Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2011 and paid dividends of $100.
```
50. Assume the equity method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?
A. $400 increase.
B. $300 increase.
C. $380 increase.
D. $280 increase.
E. $480 increase.
```
C. $380 increase
51
```
51. Assume the partial equity method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?
A. $400 increase.
B. $300 increase.
C. $380 increase.
D. $280 increase.
E. $480 increase.
```
A. $400 increase
52
```
Assume the initial value method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?
A. $400 increase.
B. $300 increase.
C. $380 increase.
D. $100 increase.
E. $210 increase.
```
D. $100 increase
53
Assume the partial equity method is used. In the years following acquisition, what additional worksheet entry must be made for consolidation purposes that is not required for the equity method?
A. Retained Earnings 20
Inv. in Subsidiary 20
B. Inv. in Subsidiary 20
Retained Earnings 20
C. Expenses 20
Inv. in Subsidiary 20
D. Expenses 20
RE 20
E. RE 20
APIC 20
A. Retained Earnings 20
| Inv. in Subsidiary 20
54
Assume the initial value method is used. In the year subsequent to acquisition, what additional worksheet entry must be made for consolidation purposes that is not required for the equity method?
A. Inv. in Subsidiary 380
Retained Earnings 380
B. Retained Earnings 380
Inv. in Subsidiary 380
C. Inv. in Subsidiary 280
Retained Earnings 280
D. Retained Earnings 280
Inv. in Subsidiary 280
E. APIC 280
Retained Earnings 280
C. Inv. in Subsidiary 280
| Retained Earnings 280
55
55. Hoyt Corporation agreed to the following terms in order to acquire the net assets of Brown Company on January 1, 2011:
(1.) To issue 400 shares of common stock ($10 par) with a fair value of $45 per share.
(2.) To assume Brown's liabilities which have a fair value of $1,500.
On the date of acquisition, the consideration transferred for Hoyt's acquisition of Brown would be
A. $18,000.
B. $16,500.
C. $20,000.
D. $18,500.
E. $19,500.
E. $19,500
56
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted.
Green Vega
Revenues 900,000 500,000
COGS 360,000 200,000
Dep Exp 140,000 40,000
Other Exp 100,000 60,000
Equity in V's Inc ?
RE 1/1/13 1,350,000 1,200,000
Dividends 195,000 80,000
Current Assets 300,000 1,380,000
Land 450,000 180,000
Bld,net 750,000 280,000
Equpmt, net 300,000 500,000
Liabilities 600,000 620,000
Common St 450,000 80,000
APIC 75,000 320,000
Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.
```
56. Compute the book value of Vega at January 1, 2009.
A. $997,500.
B. $857,500.
C. $1,200,000.
D. $1,600,000.
E. $827,500.
```
B. $857,500
57
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted.
Green Vega
Revenues 900,000 500,000
COGS 360,000 200,000
Dep Exp 140,000 40,000
Other Exp 100,000 60,000
Equity in V's Inc ?
RE 1/1/13 1,350,000 1,200,000
Dividends 195,000 80,000
Current Assets 300,000 1,380,000
Land 450,000 180,000
Bld,net 750,000 280,000
Equpmt, net 300,000 500,000
Liabilities 600,000 620,000
Common St 450,000 80,000
APIC 75,000 320,000
Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.
```
Compute the December 31, 2013, consolidated revenues.
A. $1,400,000.
B. $800,000.
C. $500,000.
D. $1,590,375.
E. $1,390,375.
```
A. $1,400,000
58
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted.
Green Vega
Revenues 900,000 500,000
COGS 360,000 200,000
Dep Exp 140,000 40,000
Other Exp 100,000 60,000
Equity in V's Inc ?
RE 1/1/13 1,350,000 1,200,000
Dividends 195,000 80,000
Current Assets 300,000 1,380,000
Land 450,000 180,000
Bld,net 750,000 280,000
Equpmt, net 300,000 500,000
Liabilities 600,000 620,000
Common St 450,000 80,000
APIC 75,000 320,000
Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.
```
Compute the December 31, 2013, consolidated total expenses.
A. $620,000.
B. $280,000.
C. $900,000.
D. $909,625.
E. $299,625.
```
D. $909,625
59
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted.
Green Vega
Revenues 900,000 500,000
COGS 360,000 200,000
Dep Exp 140,000 40,000
Other Exp 100,000 60,000
Equity in V's Inc ?
RE 1/1/13 1,350,000 1,200,000
Dividends 195,000 80,000
Current Assets 300,000 1,380,000
Land 450,000 180,000
Bld,net 750,000 280,000
Equpmt, net 300,000 500,000
Liabilities 600,000 620,000
Common St 450,000 80,000
APIC 75,000 320,000
Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.
```
Compute the December 31, 2013, consolidated buildings.
A. $1,037,500.
B. $1,007,500.
C. $1,000,000.
D. $1,022,500.
E. $1,012,500.
```
B. $1,007,500.
60
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted.
Green Vega
Revenues 900,000 500,000
COGS 360,000 200,000
Dep Exp 140,000 40,000
Other Exp 100,000 60,000
Equity in V's Inc ?
RE 1/1/13 1,350,000 1,200,000
Dividends 195,000 80,000
Current Assets 300,000 1,380,000
Land 450,000 180,000
Bld,net 750,000 280,000
Equpmt, net 300,000 500,000
Liabilities 600,000 620,000
Common St 450,000 80,000
APIC 75,000 320,000
Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.
```
Compute the December 31, 2013, consolidated equipment.
A. $800,000.
B. $808,000.
C. $840,000.
D. $760,000.
E. $848,000.
```
C. $840,000
61
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted.
Green Vega
Revenues 900,000 500,000
COGS 360,000 200,000
Dep Exp 140,000 40,000
Other Exp 100,000 60,000
Equity in V's Inc ?
RE 1/1/13 1,350,000 1,200,000
Dividends 195,000 80,000
Current Assets 300,000 1,380,000
Land 450,000 180,000
Bld,net 750,000 280,000
Equpmt, net 300,000 500,000
Liabilities 600,000 620,000
Common St 450,000 80,000
APIC 75,000 320,000
Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.
```
Compute the December 31, 2013, consolidated land.
A. $220,000.
B. $180,000.
C. $670,000.
D. $630,000.
E. $450,000.
```
C. $670,000
62
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted.
Green Vega
Revenues 900,000 500,000
COGS 360,000 200,000
Dep Exp 140,000 40,000
Other Exp 100,000 60,000
Equity in V's Inc ?
RE 1/1/13 1,350,000 1,200,000
Dividends 195,000 80,000
Current Assets 300,000 1,380,000
Land 450,000 180,000
Bld,net 750,000 280,000
Equpmt, net 300,000 500,000
Liabilities 600,000 620,000
Common St 450,000 80,000
APIC 75,000 320,000
Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.
```
Compute the December 31, 2013, consolidated trademark.
A. $50,000.
B. $46,875.
C. $0.
D. $34,375.
E. $37,500.
```
D. $34,375
63
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted.
Green Vega
Revenues 900,000 500,000
COGS 360,000 200,000
Dep Exp 140,000 40,000
Other Exp 100,000 60,000
Equity in V's Inc ?
RE 1/1/13 1,350,000 1,200,000
Dividends 195,000 80,000
Current Assets 300,000 1,380,000
Land 450,000 180,000
Bld,net 750,000 280,000
Equpmt, net 300,000 500,000
Liabilities 600,000 620,000
Common St 450,000 80,000
APIC 75,000 320,000
Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.
```
Compute the December 31, 2013, consolidated common stock.
A. $450,000.
B. $530,000.
C. $555,000.
D. $635,000.
E. $525,000.
```
A. $450,000
64
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted.
Green Vega
Revenues 900,000 500,000
COGS 360,000 200,000
Dep Exp 140,000 40,000
Other Exp 100,000 60,000
Equity in V's Inc ?
RE 1/1/13 1,350,000 1,200,000
Dividends 195,000 80,000
Current Assets 300,000 1,380,000
Land 450,000 180,000
Bld,net 750,000 280,000
Equpmt, net 300,000 500,000
Liabilities 600,000 620,000
Common St 450,000 80,000
APIC 75,000 320,000
Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.
```
Compute the December 31, 2013, consolidated additional paid-in capital.
A. $210,000.
B. $75,000.
C. $1,102,500.
D. $942,500.
E. $525,000.
```
B. $75,000
65
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted.
Green Vega
Revenues 900,000 500,000
COGS 360,000 200,000
Dep Exp 140,000 40,000
Other Exp 100,000 60,000
Equity in V's Inc ?
RE 1/1/13 1,350,000 1,200,000
Dividends 195,000 80,000
Current Assets 300,000 1,380,000
Land 450,000 180,000
Bld,net 750,000 280,000
Equpmt, net 300,000 500,000
Liabilities 600,000 620,000
Common St 450,000 80,000
APIC 75,000 320,000
Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.
```
Compute the December 31, 2013 consolidated retained earnings.
A. $1,645,375.
B. $1,350,000.
C. $1,565,375.
D. $1,840,375.
E. $1,265,375.
```
A. $1,645,375
66
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2013. Several of Green's accounts have been omitted.
Green Vega
Revenues 900,000 500,000
COGS 360,000 200,000
Dep Exp 140,000 40,000
Other Exp 100,000 60,000
Equity in V's Inc ?
RE 1/1/13 1,350,000 1,200,000
Dividends 195,000 80,000
Current Assets 300,000 1,380,000
Land 450,000 180,000
Bld,net 750,000 280,000
Equpmt, net 300,000 500,000
Liabilities 600,000 620,000
Common St 450,000 80,000
APIC 75,000 320,000
Green acquired 100% of Vega on January 1, 2009, by issuing 10,500 shares of its $10 par value common stock with a fair value of $95 per share. On January 1, 2009, Vega's land was undervalued by $40,000, its buildings were overvalued by $30,000, and equipment was undervalued by $80,000. The buildings have a 20-year life and the equipment has a 10-year life. $50,000 was attributed to an unrecorded trademark with a 16-year remaining life. There was no goodwill associated with this investment.
```
Compute the equity in Vega's income to be included in Green's consolidated income statement for 2013.
A. $500,000.
B. $300,000.
C. $190,375.
D. $200,000.
E. $290,375.
```
C. $190,375
67
One company acquires another company in a combination accounted for as an acquisition. 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?
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 method is used, no worksheet entries are required in the consolidation process.
B. It is relatively easy to apply
68
One company acquires another company in a combination accounted for as an acquisition. The acquiring company decides to apply the equity method in accounting for the combination. What is one reason the acquiring company might have made this decision?
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 equity method is used, no worksheet entries are required in the consolidation process.
D. Operating results on the parent's financial records reflect consolidated totals.
69
When is a goodwill impairment loss recognized?
A. Annually on a systematic and rational basis.
B. Never.
C. If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values.
D. If the fair value of a reporting unit falls below its original acquisition price.
E. Whenever the fair value of the entity declines significantly.
C. If both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values
70
Which of the following will result in the recognition of an impairment loss on goodwill?
A. Goodwill amortization is to be recognized annually on a systematic and rational basis.
B. Both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values.
C. The fair value of the entity declines significantly.
D. The fair value of a reporting unit falls below the original consideration transferred for the acquisition.
E. The entity is investigated by the SEC and its reputation has been severely damaged.
B. Both the fair value of a reporting unit and its associated implied goodwill fall below their respective carrying values.
71
Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, 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). Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2011, Goehler 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.
```
71. If Goehler applies the equity method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2011?
A. $1,080,000.
B. $1,104,000.
C. $1,100,000.
D. $1,468,000.
E. $1,475,000.
```
B. $1,104,000.
72
Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, 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). Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2011, Goehler 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 Goehler applies the partial equity method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2011?
A. $1,080,000.
B. $1,104,000.
C. $1,100,000.
D. $1,468,000.
E. $1,475,000.
```
B. $1,104,000
73
Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 2010, 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). Goehler has equipment with a book value of $800,000 and a fair value of $1,200,000 (10-year remaining life). On December 31, 2011, Goehler 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 Goehler applies the initial value method in accounting for Kenneth, what is the consolidated balance for the Equipment account as of December 31, 2011?
A. $1,080,000.
B. $1,104,000.
C. $1,100,000.
D. $1,468,000.
E. $1,475,000.
```
B. $1,104,000
74
How is the fair value allocation of an intangible asset allocated to expense when the asset has no legal, regulatory, contractual, competitive, economic, or other factors that limit its life?
A. Equally over 20 years.
B. Equally over 40 years.
C. Equally over 20 years with an annual impairment review.
D. No amortization, but annually reviewed for impairment and adjusted accordingly.
E. No amortization over an indefinite period time.
D. No amortization, but annually reviewed for impairment and adjusted accordingly.
75
Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2011 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142.
```
75. What will Harrison record as its Investment in Rhine on January 1, 2010?
A. $400,000.
B. $403,142.
C. $406,000.
D. $409,142.
E. $416,500.
```
B. $403,142
76
Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2011 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142.
Assuming Rhine generates cash flow from operations of $27,200 in 2010, how will Harrison record the $16,500 payment of cash on April 15, 2011 in satisfaction of its contingent obligation?
A. Debit Contingent performance obligation $16,500, and Credit Cash $16,500.
B. Debit Contingent performance obligation $3,142, debit Loss from revaluation of contingent performance obligation $13,358, and Credit Cash $16,500.
C. Debit Investment in Subsidiary and Credit Cash, $16,500.
D. Debit Goodwill and Credit Cash, $16,500.
E. No entry.
B. Debit Contingent performance obligation $3,142, debit Loss from revaluation of contingent performance obligation $13,358, and Credit Cash $16,500
77
Harrison, Inc. acquires 100% of the voting stock of Rhine Company on January 1, 2010 for $400,000 cash. A contingent payment of $16,500 will be paid on April 15, 2011 if Rhine generates cash flows from operations of $27,000 or more in the next year. Harrison estimates that there is a 20% probability that Rhine will generate at least $27,000 next year, and uses an interest rate of 5% to incorporate the time value of money. The fair value of $16,500 at 5%, using a probability weighted approach, is $3,142.
Assuming Rhine generates cash flow from operations of $27,200 in 2010, how will Harrison record the $16,500 payment of cash on April 15, 2011 in satisfaction of its contingent obligation?
```
When recording consideration transferred for the acquisition of Rhine on January 1, 2010, Harrison will record a contingent performance obligation in the amount of:
A. $628.40.
B. $2,671.60.
C. $3,142.
D. $13,358.
E. $16,500.
```
C. $3,142
78
Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 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.
```
78. What will Beatty record as its Investment in Gataux on January 1, 2010?
A. $500,000.
B. $503,461.
C. $512,000.
D. $515,461.
E. $526,500.
```
B. $503,461
79
Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 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.
Assuming Gataux generates cash flow from operations of $27,200 in 2010, how will Beatty record the $12,000 payment of cash on April 1, 2011 in satisfaction of its contingent obligation?
A. Debit Contingent performance obligation $3,461, debit Goodwill $8,539, and Credit Cash $12,000.
B. Debit Contingent performance obligation $3,461, debit Loss from revaluation of contingent performance obligation $8,539, and Credit Cash $12,000.
C. Debit Goodwill and Credit Cash, $12,000.
D. Debit Goodwill $27,200, credit Contingent performance obligation $15,200, and Credit Cash $12,000.
E. No entry.
B. Debit Contingent performance obligation $3,461, debit Loss from revaluation of contingent performance obligation $8,539, and Credit Cash $12,000.
80
Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 2010 for $500,000 cash. A contingent payment of $12,000 will be paid on April 1, 2011 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.
```
When recording consideration transferred for the acquisition of Gataux on January 1, 2010, Beatty will record a contingent performance obligation in the amount of:
A. $692.20.
B. $3,040.
C. $3,461.
D. $12,000.
E. $15,200.
```
C. $3,461
81
Prince Company acquires Duchess, Inc. on January 1, 2009. The consideration transferred exceeds the fair value of Duchess' net assets. On that date, Prince has a building with a book value of $1,200,000 and a fair value of $1,500,000. Duchess has a building with a book value of $400,000 and fair value of $500,000.
```
81. If push-down accounting is used, what amounts in the Building account appear in Duchess' separate balance sheet and in the consolidated balance sheet immediately after acquisition?
A. $400,000 and $1,600,000.
B. $500,000 and $1,700,000.
C. $400,000 and $1,700,000.
D. $500,000 and $2,000,000.
E. $500,000 and $1,600,000.
```
B. $500,000 and $1,700,000.
82
Prince Company acquires Duchess, Inc. on January 1, 2009. The consideration transferred exceeds the fair value of Duchess' net assets. On that date, Prince has a building with a book value of $1,200,000 and a fair value of $1,500,000. Duchess has a building with a book value of $400,000 and fair value of $500,000.
```
If push-down accounting is not used, what amounts in the Building account appear on Duchess' separate balance sheet and on the consolidated balance sheet immediately after acquisition?
A. $400,000 and $1,600,000.
B. $500,000 and $1,700,000.
C. $400,000 and $1,700,000.
D. $500,000 and $2,000,000.
E. $500,000 and $1,600,000.
```
C. $400,000 and $1,700,000.
83
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen owns only three assets and has no liabilities:
BV FV
Inventory (FIFO) 40,000 50,000
Equmt (10yrLife) 80,000 75,000
Bld (20yrLife) 200,000 300,000
```
83. 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, 2012, assuming the book value of the building at that date is still $200,000?
A. $200,000.
B. $285,000.
C. $290,000.
D. $295,000.
E. $300,000.
```
B. $285,000.
84
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen owns only three assets and has no liabilities:
BV FV
Inventory (FIFO) 40,000 50,000
Equmt (10yrLife) 80,000 75,000
Bld (20yrLife) 200,000 300,000
```
If Watkins pays $400,000 in cash for Glen, what amount would be represented as the subsidiary's Building in a consolidation at December 31, 2012, assuming the book value of the building at that date is still $200,000?
A. $200,000.
B. $285,000.
C. $260,000.
D. $268,000.
E. $300,000.
```
B. $285,000
85
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen owns only three assets and has no liabilities:
BV FV
Inventory (FIFO) 40,000 50,000
Equmt (10yrLife) 80,000 75,000
Bld (20yrLife) 200,000 300,000
```
If Watkins pays $450,000 in cash for Glen, what amount would be represented as the subsidiary's Equipment in a consolidation at December 31, 2012, assuming the book value of the equipment at that date is still $80,000?
A. $70,000.
B. $73,500.
C. $75,000.
D. $76,500.
E. $80,000.
```
D. $76,500.
86
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen owns only three assets and has no liabilities:
BV FV
Inventory (FIFO) 40,000 50,000
Equmt (10yrLife) 80,000 75,000
Bld (20yrLife) 200,000 300,000
```
If Watkins pays $450,000 in cash for Glen, what acquisition-date fair value allocation, net of amortization, should be attributed to the subsidiary's Equipment in consolidation at December 31, 2012?
A. $(5,000).
B. $80,000.
C. $75,000.
D. $73,500.
E. $(3,500).
```
E. $(3,500).
87
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen owns only three assets and has no liabilities:
BV FV
Inventory (FIFO) 40,000 50,000
Equmt (10yrLife) 80,000 75,000
Bld (20yrLife) 200,000 300,000
```
If Watkins pays $300,000 in cash for Glen, at what amount would the subsidiary's Building be represented in a January 2, 2010 consolidation?
A. $200,000.
B. $225,000.
C. $273,000.
D. $279,000.
E. $300,000.
```
E. $300,000
88
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen owns only three assets and has no liabilities:
BV FV
Inventory (FIFO) 40,000 50,000
Equmt (10yrLife) 80,000 75,000
Bld (20yrLife) 200,000 300,000
```
If Watkins pays $450,000 in cash for Glen, at what amount would Glen's Inventory acquired be represented in a December 31, 2010 consolidated balance sheet?
A. $40,000.
B. $50,000.
C. $0.
D. $10,000.
E. $90,000.
```
C. $0
89
Watkins, Inc. acquires all of the outstanding stock of Glen Corporation on January 1, 2010. At that date, Glen owns only three assets and has no liabilities:
BV FV
Inventory (FIFO) 40,000 50,000
Equmt (10yrLife) 80,000 75,000
Bld (20yrLife) 200,000 300,000
If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in net income and pays $20,000 in dividends during 2010, what amount would be reflected in consolidated net income for 2010 as a result of the acquisition?
A. $20,000 under the initial value method.
B. $30,000 under the partial equity method.
C. $50,000 under the partial equity method.
D. $44,500 under the equity method.
E. $34,500 regardless of the internal accounting method used.
E. $34,500 regardless of the internal accounting method used.
