Chapter 4 Questions Answers

Chapter 4 Questions - CHAPTER 4 CONSOLIDATION OF WHOLLY OWNED SUBSIDIARIES ANSWERS TO QUESTIONS Q4-1 An adjusting entry is recorded on the

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CHAPTER 4 CONSOLIDATION OF WHOLLY OWNED SUBSIDIARIES ANSWERS TO QUESTIONS Q4-1 An adjusting entry is recorded on the company's books and causes the balances reported by the company to change. Eliminating entries, on the other hand, are not recorded on the books of the companies. Instead, they are entered in the consolidation workpaper so that when the amounts included in the eliminating entries are added to, or deducted from, the balances reported by the individual companies, the appropriate balances for the consolidated entity are reported. Q4-2 The differential represents the difference between the acquisition-date fair value of the acquiree and its book value. Q4-3 A company must acquire a subsidiary at a price equal to the subsidiary’s fair value, and that subsidiary must have a total acquisition-date fair value less than its book value. Q4-4 Each of the stockholders' equity accounts of the subsidiary is eliminated in the consolidation process. Thus, none of the balances is included in the stockholders' equity accounts of the consolidated entity. That portion of the stockholders' equity claim assigned to the noncontrolling shareholders is reported indirectly in the balance assigned to the noncontrolling shareholders. Q4-5 Current consolidation standards require recognition of the fair value of the subsidiary's individual assets and liabilities at the date of acquisition. At least some portion of the book value would not be included if the fair value of a particular asset or liability was less than book value. Q4-6 One hundred percent of the fair value of the subsidiary’s assets and liabilities at the date of acquisition should be included. The type of asset or liability will determine whether a change in its value will be recognized following the date of acquisition. Q4-7
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This note was uploaded on 02/19/2011 for the course ACC 440 taught by Professor Henderson during the Spring '08 term at University of Phoenix.

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Chapter 4 Questions - CHAPTER 4 CONSOLIDATION OF WHOLLY OWNED SUBSIDIARIES ANSWERS TO QUESTIONS Q4-1 An adjusting entry is recorded on the

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