alra0274 posted a question
1. In a purchase or acquisition where control is achieved, how would the land accounts of the parent and the land accounts of the subsidiary be combined?

A. Entry A
B. Entry B
C. Entry C
D. Entry D
E. Entry E
2. Which one of the following varies between the equity, initial value and partial equity methods of accounting for an investment in a subsidiary?
A. The retained earnings of the parent company
B. Total assets on the consolidated balance sheet
C. Total liabilities on the consolidated balance sheet
D. The non-controlling interest in the subsidiary
E. The amount of consolidated cost of goods sold
3. 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 value method is used, no worksheet entries are required in the consolidation process
4. 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 in the presentation of consolidated financial statements?
A. Purchased pre-acquisition earnings of the subsidiary are excluded from consolidated earnings
B. Purchased pre-acquisition revenues and expenses are included with combined revenues and expenses
C. Purchased pre-acquisition earnings are deducted from the beginning consolidated stockholders' equity
D. Purchased pre-acquisition earnings are added to the beginning consolidated stockholders' equity
E. Purchased pre-acquisition earnings are reported separately on the consolidated income statement
Use the following information for questions 10 and11.
On January 1, 2009, Franel Co. acquired all of the common stock of Hurlem Corp. For 2009, 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.
5. 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
6. 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
7. When a parent uses the equity method throughout the year to account for investment in a subsidiary, which of the following statements is false?
A. Parent company net income equals controlling interest in consolidated net income
B. Parent company retained earnings equal consolidated retained earnings
C. Parent company total assets are different from consolidated total assets
D. Parent company revenues are different from consolidated revenues
E. Goodwill recorded separately on the parent company balance sheet equals consolidated goodwill

8. During 2009, Von Co. sold inventory to its wholly-owned subsidiary, Lord Co. The inventory cost $30,000 and was sold to Lord for $44,000. From the perspective of the combination, when is the $14,000 gain realized?
A. When the goods are sold to a third party by Lord
B. When Lord pays Von for the goods
C. When Von sold the goods to Lord
D. When the goods are used by Lord
E. No gain can be recognized since the transaction was between related parties
9. Parent sold land to its subsidiary for a gain in 2007. The subsidiary sold the land externally for a gain in 2010. Which of the following statements is false?
A. A gain will be reported on the consolidated income statement in 2010
B. No gain will be reported on the consolidated income statement in 2007
C. A gain will be reported by the subsidiary on its 2010 income statement
D. A gain will be reported by the subsidiary on its 2007 income statement
E. A gain will be reported by the parent on its 2007 income statement
10. On January 1, 2009, Payton Co. sold equipment to its subsidiary, Starker Corp., for $115,000. The equipment had cost $125,000 and the balance in accumulated depreciation was $45,000. The equipment had an estimated remaining useful life of eight years and $0 salvage value. Both companies use straight-line depreciation. On their separate 2009 income statements, Payton and Starker reported depreciation expense of $84,000 and $60,000, respectively. The amount of depreciation expense on the consolidated income statement for 2009 would have been
A. $144,000
B. $148,375
C. $109,000
D. $134,000
E. $139,625



Problem 1
Green obtained 100% of Vega on January 1, 2009, by issuing 20,000 shares of its $10 par value common stock with a fair value of $100 per share. On January 1, 2009, Vega's land was undervalued by $100,000, its buildings were overvalued by $60,000 and equipment was undervalued by $80,000. The buildings have a 15-year life and the equipment has a 10-year life. $80,000 was attributed to an unrecorded trademark with a 16-year remaining life.
Following are selected accounts for Green Corporation and Vega Company as of December 31, 2010. Several of Green's accounts have been omitted.

If this combination is viewed as an acquisition, what was consolidated net income for the year ended December 31, 2010?

Problem 2
Bell Company acquired 60% of Demers Company for $480,000 on January 1, 2009. Demers reported common stock of $300,000 and retained earnings of $200,000 on that date. Equipment was undervalued by $80,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.
Demers earns income and pays dividends as follows:



What is the non-controlling interest balance as of December 31, 2011?

Problem 3
Several years ago Alberta Inc. purchased an 80% interest in Columbia Co. The book values of Columbia's asset and liability accounts at that time were considered to be equal to their fair values. Alberta paid an amount corresponding to the underlying book value of Columbia so that no allocations or goodwill resulted from the purchase price.

The following selected account balances were from the individual financial records of these two companies as of December 31, 2009:

Alberta Inc. Columbia Co.
Sales 750,000 400,000
Cost of Goods Sold 580,000 240,000
Operating expenses 140,000 70,000
Retained Earnings, 1/1/09 1,200,000 540,000
Inventory 320,000 170,000
Buildings (net) 400,000 180,000

Columbia sold inventory to Alberta at a markup equal to 40% of cost. Intercompany transfers were $150,000 in 2008 and $180,000 in 2009. Of this inventory, $28,000 of the 2008 transfers were retained and then sold by Polar in 2009 whereas $35,000 of the 2009 transfers were held until 2010.

Required:

On the consolidated financial statements for 2009, determine the balances that would appear for the following accounts: (1) Sales, (2) Cost of Goods Sold, (3) Inventory and (4) Non-controlling Interest in Subsidiary's Net Income.

Problem 4

On January 1, 2009, Banff Enterprises Co. (BEC) bought a 90% interest in Jasper Manufacturing, Inc. (JMI). BEC paid for the transaction with $7 million cash and 500,000 shares of BEC common stock (par value $2.00 per share). On January 1, BE stock had a market value of $40.00 per share. BEC did not pay a control premium. At the time of the acquisition, JMI's book value was $24,000,000. BEC uses the acquisition method to account for this combination. For internal reporting purposes, BEC employed the initial value method to account for this investment.

JMI had the following balances on January 1, 2009.

Fair
Book Market
Value Value
Land $8,000,000 $10,500,000
Buildings (ten-year remaining life) 12,000,000 14,500,000
Equipment (five-year remaining life) 4,500,000 3,300,000


Required:

a. Complete the schedule to determine the amortization and allocation amounts.

Annual
Life Amortization
Acquisition value of Jasper Manufacturing
Book value
Acquisition value in excess of book value
Excess value assigned to specific
accounts based on fair market values
Land
Buildings
Equipment
Goodwill
Total



The following account balances are for the year ending December 31, 2010 for both companies.

Banff Jasper
Enterprises Manufacturing
Revenues $(300,000,000) $(120,000,000)
Expenses 277,600,000 112,000,000
Dividend income ( 3,600,000) 0
Net income $( 26,000,000) $( 8,000,000)

Retained earnings, January 1, 2010 $( 42,000,000) $( 14,000,000)
Net income (above) ( 26,000,000) ( 8,000,000)
Dividends paid 9,000,000 4,000,000
Retained earnings, December 31, 2010 $( 59,000,000) $( 18,000,000)

Current Assets $ 45,000,000 $ 20,000,000
Investment in Jasper Manufacturing 27,000,000
Land 15,000,000 9,000,000
Buildings (net) 19,000,000 12,500,000
Equipment (net) 8,000,000 5,500,000
Total assets $ 114,000,000 $ 47,000,000

Accounts payable $( 32,000,000) $ (15,000,000)
Notes payable ( 3,000,000)
Common stock ( 4,000,000) ( 2,000,000)
Additional paid-in capital ( 19,000,000) ( 9,000,000)
Retained earnings, Dec. 31, 2010 (above) ( 59,000,000) ( 18,000,000)
Total liabilities and stockholders’ equity $(114,000,000) $( 47,000,000)


Required:

b. Complete the consolidation worksheet for this business combination. Assume goodwill has been reviewed and there is no goodwill impairment. You may need to add rows to make all of the necessary adjustments.
CONSOLIDATED WORKSHEET
For the year ended 12/31/2010

Non-
Banff Jasper Consolidation Entries controlling Consolidated
Account Ent. Mfg. DR CR Interest Balance
Revenues (300,000,000) (120,000,000)
Expenses 277,600,000 112,000,000
Dividend Income ( 3,600,000)
Noncontrolling Interest
in Jasper’s Income
Net Income (26,000,000) (8,000,000)

R/E, 1/1/10 ( 42,000,000) ( 14,000,000)
Net Income ( 26,000,000) ( 8,000,000)
Dividends 9,000,000 4,000,000
R/E, 12/31/10 ( 59,000,000) ( 18,000,000)

Current assets 45,000,000 20,000,000
Investment in Jasper
Mfg. 27,000,000


Land 15,000,000 9,000,000
Building (net) 19,000,000 12,500,000
Equipment (net) 8,000,000 5,500,000
Goodwill
Total Assets 114,000,000 47,000,000

Accounts Payable ( 32,000,000) (15,000,000)
Notes Payable ( 3,000,000)
Noncontrolling Interest

Common Stock ( 4,000,000) ( 2,000,000)
Additional Paid-in
Capital ( 19,000,000) ( 9,000,000)
R/E, 12/31/10 ( 59,000,000) ( 18,000,000)
Total liabilities&
Stockholders’ Equity (114,000,000) (47,000,000)








Problem 5

Plane Corp. acquired all of the outstanding shares of Jet Inc. on January 1, 2008 for $400,000 in cash. Of this price, $70,000 was attributed to undervalued equipment with a ten-year remaining useful life. Goodwill of $30,000 had also been identified. Plane applied the equity method to account for its interest in Jet.

During 2009, Jet began to sell merchandise to Plane. During that year, inventory costing $100,000 was transferred at a price of $140,000. All but $28,000 (at selling price) of these goods were resold to outside parties by year's end. During 2010, Jet sold inventory costing $120,000 to Plane for a price of $160,000. Of this inventory, $40,000 (at selling price) remained at the end of the year. Plane still owed $30,000 for inventory shipped from Jet during December.

The following financial amounts were complied for the two companies for the year ended December 31, 2010.

Plane Corp. Jet Inc.
Revenues $(2,400,000) $(800,000)
Cost of goods sold 1,828,000 600,000
Expenses 286,000 103,000
Equity in income of Jet (88,000) 0
Net income $(374,000) $ (97,000)

Retained earnings, January 1, 2010 $(500,000) $(230,000)
Net income (above) (374,000) (97,000)
Dividends paid 250,000 60,000
Retained earnings, December 31, 2010 $(624,000) $(267,000)

Cash and receivables $ 180,000 $ 200,000
Inventory 284,000 160,000
Investment in Jet Inc. 536,000 0
Land, buildings, and equipment (net) 680,000 440,000
Total assets $ 1,680,000 $ 800,000

Accounts payable $(324,000) $(133,000)
Bonds payable (476,000) (200,000)
Common stock (256,000) (200,000)
Retained earnings, December 31,2010 (above) (624,000) (267,000)
Total liabilities and stockholders equity $(1,680,000) $ (800,000)



Required: Complete the consolidation worksheet. You may need to add rows to make the necessary adjustments to some accounts.


Plane Jet Consolidated Entries Consolidated
Account Corp Inc. DR CR Balance
Revenues $(2,400,000) $(800,000)
Cost of Goods Sold 1,828,000 600,000
Expenses 286,000 103,000
Equity in Income of Jet ( 88,000)
Net Income ( 374,000) ( 97,000)
R/E, 1/1/10, Plane Corp. ( 500,000)
R/E, 1/1/10, Jet Inc. ( 230,000)
Net Income ( 374,000) ( 97,000)
Dividends Paid 250,000 60,000
R/E, 12/31/10 ( 624,000) ( 267,000)
Cash & Receivables $ 180,000 $ 200,000
Inventory 284,000 160,000
Investment in Jet 536,000 0



Land, Buildings, & Equipment (net) 680,000 440,000
Goodwill
Total Assets 1,680,000 800,000

Accounts Payable (324,000) (133,000)
Bonds Payable (476,000) (200,000)
Common Stock (256,000) (200,000)
R/E, 12/31/10 (624,000) (267,000)
Total Liabilities & Stockholders’ Equity (1,680,000) (800,000)