Test 2 Flashcards

1
Q

Most parent companies have

A

100% control over their subsidiaries

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2
Q

Even if a parent company doesn’t have 100% control over their subsidiaries, they can establish control with

A

a lesser amount

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3
Q

if the parent doesn’t own 100%, outside owners are referred to as

A

non-controlling interest

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4
Q

The parent, with controlling interest, must consolidate 100 percent of its subsidiary’s financial info as a single economic unit, regardless of

A

The parents level of ownership

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5
Q

The acquisition method requires that the subsidiary be valued at

A

the acquisition date fair value

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6
Q

The sum of the two components for calculating total acquired fair value in a partial acquisition are

A

the fair value of the controlling interest
the fair value of the non-controlling interest at the acquisition date

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7
Q

Assume Parker Corporation wants to acquire 90 percent of Strong Company. Strong’s stock has been trading for around $60 per share.
Parker offered all of Strong’s shareholders a premium price of $70 per share for up to 90 percent of the outstanding shares, even though the shares are trading in the $59 to $61 range.
The fair value of Strong is measured as the sum of the respective fair values of the controlling and noncontrolling interest.

A

Parker purchased 9,000 shares at $70 per share. The fair value of their consideration transferred is $630,000.
The remaining 1,000 shares trade at $60 per share, indicating that the fair value of the noncontrolling interest is $60,000. The total acquisition-date fair value of the subsidiary is $690,000.
Fair value of controlling interest
($70 × 9,000 shares) . . . . . . . . . . . . . . . $630,000
Fair value of noncontrolling interest
($60 × 1,000 shares) . . . . . . . . . . . . . . . . . 60,000
Total fair value of subsidiary . . . . . . $690,000

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8
Q

Goodwill apportioned across controlling and non-controlling interests

A

Total acquisition-date fair value (amount paid) of Strong, $690,000, is greater than the fair value of the identifiable net assets acquired of $600,000 (10,000 shares × $60 per share). The difference, $90,000, is allocated to Goodwill.

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9
Q

If the total fair value of the acquired firm is less than the collective sum of its identifiable net assets

A

-A bargain purchase occurs.
-Parent recognizes the entire gain in current income.
-No gain is ever allocated to the noncontrolling interest.

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10
Q

Once consolidated net income is determined….

A

it is allocated to the parent company and the noncontrolling interests.

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11
Q

Non-controlling interests’ ownership pertains only to the subsidiary

A

its share of consolidated net income is limited to a share of the adjusted subsidiary’s net income.

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12
Q

The parent company must determine and enter each of these figures when constructing a worksheet:

A
  • Noncontrolling interest in subsidiary at beginning of current year.
  • Net income attributable to noncontrolling interest.
  • Subsidiary dividends attributable to noncontrolling interest.
  • Noncontrolling interest as of the end of the year (three balances above combined)
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13
Q

Consolidated net income is computed at the ________
and allocated to the ____________

A

combined entity level
noncontrolling and controlling interests

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14
Q

The statement of changes in owners’ equity provides

A

details of the ownership changes for the year for both the controlling and noncontrolling interest shareholders.

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15
Q

When control of a subsidiary is acquired at a midyear date:

A

-New parent must compute the subsidiary’s book value as of acquisition date

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16
Q

Companies that make up a business combination….

A

retain their legal identities as separate operating centers and maintain their own records

17
Q

In producing consolidated financial statements…

A

transfers are eliminated

18
Q

consolidated statements reflect only

A

transactions with outside parties

19
Q

Accounts affected by intra entity transactions

A

Revenues
Cost of Goods Sold
Net Income Attributable to the Noncontrolling Interest
Retained Earnings at the Beginning of the Year
Inventory
Noncontrolling Interest in Subsidiary at End of Year

20
Q

Financial Reporting objectives remain unchanged for intra-entity sales of depreciable assets:

A

-Defer intra-entity gains.
-Re-establish historical cost balances.
-Recognize appropriate income within the consolidated financial statements.
-Defer gains

21
Q

The three tests used to determine if an operating segment is reportable

A

Revenue test
Profit or loss test
Asset test

22
Q

Revenue test

A

revenues of all operating segments are 10 percent or more

23
Q

Profit or loss test

A

if profit or loss is 10 percent or more of the combined profit or loss

24
Q

asset test

A

its assets are 10 percent or more of the combined assets of all operating segments

25
What is a company not required to disclose?
revenues generated from export sales
26
Which operating segment disclosure is not required?
Liabilities
27
What is not true under GAAP?
Companies must combine individual foreign countries into geographic areas to comply with the geographic area disclosure requirements.
28
What is required to be disclosed by geographic areas?
revenues from external customers
29
For interim financial reporting, a gain from the sale of land occurring in the second quarter should be
recognized in the second quarter
30
Which item must be disclosed in interim reports?
gross revenues
31
What is the primary reason we defer financial statement recognition of gross profits on intra-entity sales for goods that remain within the consolidated entity at year-end?
When intra-entity sales remain in ending inventory, control of the goods has not changed.