Ch4 Test Bank

7/17/2019 Ch4 Test Bank

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Student: ___________________________________________________________________________

1. According to SFAS 160, Non-controlling Interests and Consolidated Financial Statements, a non-controllinginterest is most likely to be shown as part of equity under theA. Partial equity conceptB. Proportionate consolidation conceptC. Economic unit conceptD. Parent company conceptE. Proprietary concept

When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of

$70,000 and a fair value of $100,000.

2. What amount should have been reported for the land on a consolidated balance sheet, according to SFAS141(R), assuming the economic unit concept was used?A. $70,000B. $75,000C. $85,000D. $92,500E. $100,000

3. What amount of excess land allocation would be included for the calculation of non-controlling interest,according to SFAS 141(R)?A. $0B. $7,500C. $17,500D. $25,000E. $70,000

4. What amount should have been reported for the land on a consolidated balance sheet, assuming theinvestment was obtained prior to SFAS 141(R) and the parent company concept was used?A. $70,000B. $75,000C. $85,000D. $92,500E. $100,000



Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assetswas $1,850,000 and the book value was $1,500,000. The non-controlling interest shares of Float Corp. are notactively traded.

5. What is the total amount of goodwill recognized according to the economic unit concept per SFAS 141 (R)?A. $150,000

B. $250,000C. $0D. $120,000E. $170,000

6. What amount of goodwill should be attributed to Perch according to the economic unit concept per SFAS141(R)?A. $150,000B. $250,000

C. $0D. $120,000E. $170,000

7. What amount of goodwill should be attributed to the non-controlling interest according to the economic unitconcept per SFAS 141(R)?A. $0B. $20,000C. $30,000

D. $100,000E. $120,000

8. What is the dollar amount of non-controlling interest which should appear on a balance sheet preparedimmediately after consolidation according to the economic unit concept per SFAS 141(R)?A. $350,000B. $300,000C. $400,000D. $370,000

E. $0



9. What is the dollar amount of Float Corp.'s net assets that would be represented on a balance sheet preparedimmediately after consolidation according to the economic unit concept per SFAS 141(R)?A. $1,600,000B. $1,480,000C. $1,200,000D. $1,780,000E. $1,850,000

10. What is the dollar amount of non-controlling interest which should appear on a balance sheet preparedimmediately after consolidation according to the parent company concept?A. $350,000B. $300,000C. $400,000D. $250,000E. $0

Femur Co. owns 70% of the voting common stock of Harbor Corp. During 2009, Harbor had revenues of$2,500,000 and expenses of $2,000,000. The amortization of excess cost allocations totaled $60,000 in 2009.Femur Co. accounts for its consolidations according to SFAS 141(R) and SFAS 160.

11. The non-controlling interest's share of the earnings of Harbor Corp. is calculated to beA. $132,000B. $150,000C. $168,000

D. $160,000E. $0

12. What is the net effect of the inclusion of Harbor on consolidated net income for 2009?A. $350,000B. $308,000C. $500,000D. $440,000E. $290,000

Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2009. For 2009, Kaileyreported revenues of $800,000 and expenses of $620,000. The annual amount of amortization related to thisacquisition was $15,000. Denber Co. accounts for its consolidations according to SFAS 141(R) and SFAS 160.



13. In consolidation, the total amount of expenses related to Kailey and to Denber's acquisition of Kailey for2009 is determined to beA. $206,667B. $211,667C. $221,667D. $620,000E. $635,000

14. The impact of the consolidation on consolidated net income for 2009 is determined to beA. $31,000B. $33,000C. $55,000D. $60,000E. $39,000

15. The non-controlling interest's share of Denber's income for 2009 is calculated to beA. $22,000B. $24,000C. $48,000D. $66,000E. $72,000

16. MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in a business combination thatresulted in the recognition of goodwill. Nomes owned a piece of land that cost $250,000 but was worth

$600,000 at the date of purchase. What value would be attributed to this land in a consolidated balance sheet atthe date of takeover, according to the economic unit concept per SFAS 141(R) and the parent company concept per SFAS 141?

A. Entry A

B. Entry BC. Entry CD. Entry DE. Entry E



17. Kordel Inc. holds 75% of the outstanding common stock of Raxston Corp. Raxston currently owes Kordel$500,000 for inventory acquired over the past few months. In preparing consolidated financial statements, whatamount of this debt should be eliminated?A. $375,000B. $125,000C. $300,000D. $500,000E. $0

Royce Co. acquired 60% of Park Co. for $420,000 when Park's book value was $560,000. On that date, Parkhad equipment (with a ten-year life) that was undervalued in the financial records by $140,000. Two years later,the following figures were reported by the two companies (stockholders' equity accounts have been omittedfrom their separate operations). Royce accounts for its consolidations according to SFAS 141(R) and SFAS160.

18. What is consolidated net income that is attributable to Royce's controlling interest?A. $686,000B. $560,000C. $644,000D. $635,600E. $691,600

19. What is the non-controlling interest's share of the subsidiary's net income and what is the ending balance ofthe non-controlling interest in the subsidiary?

A. $50,400 and $324,800B. $53,648 and $304,500C. $56,000 and $296,800D. $52,640 and $313,600E. $55,270 and $297,300

20. What is the consolidated balance of the Equipment account?A. $666,400B. $604,000

C. $756,000D. $711,200E. $764,000



On January 1, 2009, Palk Corp. and Spraz Corp. had condensed balance sheets as follows:On January 2, 2009, Palk borrowed $84,000 to acquire 90% of the outstanding common shares of Spraz. Thiswas to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2009. The excessconsideration transferred over the underlying book value of the acquired net assets was allocated 60% toinventory and 40% to goodwill. Palk accounts for its consolidations according to SFAS 141(R) and SFAS 160.

21. What is consolidated current assets as of January 2, 2009?A. $138,600B. $134,400C. $126,000D. $140,000E. $127,400

22. What is consolidated noncurrent assets as of January 2, 2009?A. $182,000

B. $190,400C. $187,600D. $191,333E. $189,000

23. What is consolidated current liabilities as of January 2, 2009?A. $70,000B. $56,000C. $64,400

D. $42,000E. $58,100

24. Under the economic unit concept, which of the following statements is true about consolidated financialstatements?A. The accounting emphasis in preparing consolidated financial statements is placed on the businesscombination being formedB. The accounting emphasis in preparing consolidated financial statements is placed on the parent's investmentC. The objective of consolidated financial statements is to serve as a report to the stockholders of the parent

companyD. The economic unit concept is a hybrid of the proportionate consolidation concept and the parent companyconceptE. The economic unit concept is no longer allowed according to SFAS 141(R)



25. Under the proportionate consolidation concept, which of the following statements is true about consolidatedfinancial statements?A. The accounting emphasis in preparing consolidated financial statements is placed on the businesscombination being formedB. Holding control of a subsidiary provides the parent with an indivisible interest in that companyC. The objective of consolidated financial statements is to serve as a report to the stockholders of the parentcompanyD. The proportionate consolidation concept is a hybrid of the economic unit concept and the parent company

conceptE. The proportionate consolidation concept is no longer allowed according to SFAS 141(R)

26. Under the parent company concept, which of the following statements is false about consolidated financialstatements?A. Holding control of a subsidiary provides the parent with an indivisible interest in that companyB. Consolidated financial statements are produced primarily for the benefit of the parent company stockholdersC. The non-controlling interest is calculated at book value amountsD. A portion of the subsidiary net assets is valued at book value and a portion is valued at fair value

E. All of the subsidiary net assets are valued at fair value

27. When a parent uses the equity method throughout the year to account for investment in a subsidiary, whichof the following statements is false before making adjustments on the consolidated worksheet?A. Parent company net income equals controlling interest in consolidated net incomeB. Parent company retained earnings equals consolidated retained earningsC. Parent company total assets equals consolidated total assetsD. Parent company dividends equals consolidated dividendsE. Goodwill may need to be recorded

28. When a parent uses the initial value method throughout the year to account for investment in a subsidiary,which of the following statements is true before making adjustments on the consolidated worksheet?A. Parent company net income equals consolidated net incomeB. Parent company retained earnings equals consolidated retained earningsC. Parent company total assets equals consolidated total assetsD. Parent company dividends equals consolidated dividendsE. Goodwill is never recognized



29. When a parent uses the partial equity method throughout the year to account for investment in a subsidiary,which of the following statements is false before making adjustments on the consolidated worksheet?A. Parent company net income will equal controlling interest in consolidated net income when initial value, book value and fair value of the investment are equalB. Parent company net income will exceed controlling interest in consolidated net income when fair valueacquired exceeds book valueC. Parent company net income will be less than controlling interest in consolidated net income when fair valueacquired exceeds book value

D. Goodwill will be recognized if acquisition value exceeds fair valueE. Subsidiary net assets are valued at their book values

30. In a step acquisition, using the economic unit concept per SFAS 141(R), which of the following statementsis false?A. The acquisition method views a step acquisition essentially the same as a single step acquisitionB. Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year C. Income from subsidiary is computed for the entire year for a new purchase acquired during the year D. Obtaining control through a step acquisition is a significant re-measurement event

E. Pre-acquisition earnings are not included on the consolidated income statement

31. Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing commonstock and using the economic unit concept?A. The parent recognizes a larger percent of income from subsidiaryB. A step acquisition resulting in control may result in a parent recognizing a gain on revaluationC. The book value of the subsidiary will increaseD. The parent's percent ownership in subsidiary will increaseE. Non-controlling interest in subsidiary's net income will decrease

32. When a subsidiary is acquired sometime after the first day of the fiscal year, which of the followingstatements is true?A. Income from subsidiary is not recognized until there is an entire year of consolidated operationsB. Income from subsidiary is recognized from date of acquisition to year-endC. Excess cost over acquisition value is recognized at the beginning of the fiscal year D. No goodwill can be recognizedE. Income from subsidiary is recognized for the entire year

33. When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, whichof the following statements is true in the presentation of consolidated financial statements?A. Purchased pre-acquisition earnings are deducted from combined revenues and expensesB. Purchased pre-acquisition earnings are added to combined revenues and expensesC. Purchased pre-acquisition earnings are deducted from the beginning consolidated stockholders' equityD. Purchased pre-acquisition earnings are added to the beginning consolidated stockholders' equityE. Purchased pre-acquisition earnings are ignored on the consolidated income statement



34. When a parent uses the acquisition method for business combinations and sells shares of its subsidiary,which of the following statements is false?A. If majority control is still maintained, consolidated financial statements are still requiredB. If majority control is not maintained but significant influence exists, the equity method to account for theinvestment is still used but consolidated financial statements are not requiredC. If majority control is not maintained but significant influence exists, the equity method is still used toaccount for the investment and consolidated financial statements are still requiredD. If majority control is not maintained and significant influence no longer exists, a prospective change in

accounting principle to the fair value method is requiredE. A gain or loss calculation must be prepared if control is lost

35. All of the following statements regarding the sale of subsidiary shares are true except which of thefollowing?A. The use of specific identification based on serial number is acceptableB. The use of the FIFO assumption is acceptableC. The use of the averaging assumption is acceptableD. The use of specific LIFO assumption is acceptable

E. The parent company must determine whether consolidation is still appropriate for the remaining sharesowned

36. Which of the following statements is true regarding the sale of subsidiary shares when using the acquisitionmethod for accounting for business combinations?A. If control continues, the difference between selling price and acquisition value is recorded as a realized gainor lossB. If control continues, the difference between selling price and acquisition value is an unrealized gain or lossC. If control continues, the difference between selling price and carrying value is recorded as an adjustment to

additional paid-in capitalD. If control continues, the difference between selling price and carrying value is recorded as a realized gain orlossE. If control continues, the difference between selling price and carrying value is recorded as an adjustment toretained earnings

37. When using the acquisition method for accounting for business combinations, all of the followingstatements are false regarding the sale of subsidiary shares except :A. If control ceases to exist and significant influence ceases to exist, the difference between selling price and

acquisition value is recorded as a realized gain or lossB. If control ceases to exist and significant influence ceases to exist, the difference between selling price andacquisition value is recorded as an unrealized gain or lossC. If control ceases to exist and significant influence ceases to exist, the difference between selling price andcarrying value is recorded as a realized gain or lossD. If control ceases to exist and significant influence ceases to exist, the difference between selling price andcarrying value is recorded as an unrealized gain or lossE. If control ceases to exist and significant influence ceases to exist, the difference between selling price andcarrying value is recorded as an adjustment to retained earnings



38. Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on September 1, 2009 and anadditional 10% on April 1, 2010. Total annual amortization of $6,000 relates to the first acquisition. Georgereports the following figures for 2010:

Without regard for this investment, Keefe earns $300,000 in net income during 2010.All net income is earned evenly throughout the year.What is the controlling interest in consolidated net income for 2010?A. $373,300B. $372,850C. $371,500D. $376,000E. $372,805

McGuire company acquired 90 percent of Hogan Company on January 1, 2009, for $234,000 cash. Hogan'sstockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis ofHogan's net assets revealed the following:Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of5 years.

39. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Buildings account?A. $2,000 increaseB. $2,000 decreaseC. $1,800 increaseD. $1,800 decreaseE. No change

40. In consolidation at December 31, 2009, what adjustment is necessary for Hogan's Buildings account?A. $1,620 increaseB. $1,620 decreaseC. $1,800 increaseD. $1,800 decreaseE. No change




42. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Equipment account?A. $4,000 increaseB. $4,000 decreaseC. $3,600 increaseD. $3,600 decreaseE. No change

43. In consolidation at December 31, 2009, what adjustment is necessary for Hogan's Equipment account?

A. $3,000 increaseB. $3,000 decreaseC. $2,700 increaseD. $2,700 decreaseE. No change

44. In consolidation at December 31, 2010, what adjustment is necessary for Hogan's Equipment account?A. $2,000 increaseB. $2,000 decrease

C. $1,800 increaseD. $1,800 decreaseE. No change

45. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Land account?A. $7,000 increaseB. $7,000 decreaseC. $6,300 increaseD. $6,300 decrease

E. No change



46. In consolidation at December 31, 2009, what adjustment is necessary for Hogan's Land account?A. $0B. $7,000 increaseC. $6,300 increaseD. $6,300 decreaseE. $8,000 decrease


48. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Patent account?

A. $7,000B. $6,300C. $0D. $11,000E. $9,900

49. In consolidation at December 31, 2009, what net adjustment is necessary for Hogan's Patent account?A. $5,600B. $8,800

C. $0D. $7,700E. $7,000

50. In consolidation at December 31, 2010, what net adjustment is necessary for Hogan's Patent account?A. $4,200B. $5,500C. $0D. $6,600

E. $88,000



Bell Company acquires 80% of Demers Company for $500,000 on January 1, 2009. Demers reported commonstock of $300,000 and retained earnings of $200,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess considerationtransferred 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:

Assume the equity method is applied.

51. Compute Bell's investment in Demers at December 31, 2009.A. $580,000B. $574,400C. $548,000D. $542,400

E. $541,000

52. Compute Bell's investment in Demers at December 31, 2010.A. $577,200B. $664,800C. $592,800D. $580,000E. $572,000


54. Compute Bell's income from Demers for the year ended December 31, 2009.A. $74,400B. $73,000C. $42,400D. $41,000E. $80,000





57. Compute the non-controlling interest in the net income of Demers at December 31, 2009.

A. $20,000B. $12,000C. $18,600D. $10,600E. $14,400

58. Compute the non-controlling interest in the net income of Demers at December 31, 2010.A. $18,400B. $14,400

C. $22,600D. $24,000E. $12,600

59. Compute the non-controlling interest in the net income of Demers at December 31, 2011.A. $20,400B. $26,000C. $24,600D. $14,000

E. $12,600



60. Compute the non-controlling interest of Demers at December 31, 2009.A. $135,600B. $117,000C. $112,000D. $100,000E. $110,600


62. Compute the non-controlling interest of Demers at December 31, 2011.

A. $107,800B. $140,000C. $165,200D. $160,800E. $146,800

Bell Company acquires 80% of Demers Company for $500,000 on January 1, 2009. Demers reported commonstock of $300,000 and retained earnings of $200,000 on that date. Equipment was undervalued by $30,000 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:

Assume the initial value method is applied.






66. How much does Bell report as Income from Demers for the year ended December 31, 2009?

A. $32,000B. $74,400C. $73,000D. $42,400E. $41,000

67. How much does Bell report as Income from Demers for the year ended December 31, 2010?A. $90,400B. $40,000

C. $89,000D. $50,400E. $56,000

68. How much does Bell report as Income from Demers for the year ended December 31, 2011?A. $48,000B. $56,000C. $98,400D. $97,000

E. $50,400



69. Compute the non-controlling interest in the net income of Demers at December 31, 2009.A. $12,000B. $10,600C. $18,600D. $20,000E. $14,400


71. Compute the non-controlling interest in the net income of Demers at December 31, 2011.

A. $24,600B. $14,000C. $26,000D. $20,400E. $12,600

72. Compute the non-controlling interest of Demers at December 31, 2009.A. $135,600B. $80,000

C. $117,000D. $100,000E. $110,600

73. Compute the non-controlling interest of Demers at December 31, 2010.A. $126,000B. $106,000C. $109,200D. $149,600

E. $148,200




Bell Company acquires 80% of Demers Company for $500,000 on January 1, 2009. Demers reported commonstock of $300,000 and retained earnings of $200,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess considerationtransferred over fair value was attributed to goodwill with an indefinite life.Demers earns income and pays dividends as follows:

Assume the partial equity method is applied.



77. Compute Bell's investment in Demers at December 31, 2011.

A. $780,000B. $660,000C. $785,000D. $676,000E. $620,000



78. How much does Bell report as Income from Demers for the year ended December 31, 2009?A. $80,000B. $74,400C. $73,000D. $42,400E. $41,000

79. How much does Bell report as income from Demers for the year ended December 31, 2010?A. $90,400B. $89,000C. $50,400D. $96,000E. $56,000

80. How much does Bell report as income from Demers for the year ended December 31, 2011?

A. $98,400B. $56,000C. $104,000D. $97,000E. $50,400

81. Compute the non-controlling interest in the net income of Demers at December 31, 2009.A. $20,000B. $12,000

C. $18,600D. $10,600E. $14,400

82. Compute the non-controlling interest in the net income of Demers at December 31, 2010.A. $18,400B. $14,000C. $22,600D. $24,000

E. $12,600





85. Compute the non-controlling interest of Demers at December 31, 20010.

A. $124,000B. $126,000C. $109,200D. $149,600E. $148,200

86. Compute the non-controlling interest of Demers at December 31, 2011.A. $107,800B. $140,000

C. $80,000D. $160,800E. $146,800

Ross Company acquired 90% of Parsons Company several years ago and recorded goodwill of $200,000 at thatdate. During 2009 an analysis of the fair market value of Parson's assets determined an impairment of goodwillin the amount of $50,000.

87. At what amount would consolidated goodwill be reported for 2009?A. $150,000B. $200,000C. $50,000D. $0E. $135,000



88. What journal entry would be made by Ross regarding its investment in Parsons impairment of goodwill?

A. Journal entry AB. Journal entry BC. Journal entry CD. Journal entry DE. Journal entry E

89. Under the economic unit concept and according to SFAS 160, where would the non-controlling interest

appear on the consolidated balance sheet?

90. What is pre-acquisition income?

91. Shedds Corp. owns less than one hundred percent of the voting common stock of Beta Co. Under whatconditions will Shedds be required to prepare consolidated financial statements?



92. Where may a non-controlling interest be presented on a consolidated balance sheet?

93. A theory related to consolidation of a subsidiary is the economic unit concept. What are the theoreticalarguments on which the economic unit concept is based?

94. How would you determine the amount of goodwill to be recognized at date of acquisition when there is anon-controlling interest present and the economic unit concept is used?

95. How is a non-controlling interest in the net income of an entry reported in the income statement under theeconomic unit concept?

96. One company buys a controlling interest in another company on April 1. How should the pre-acquisitionsubsidiary revenues and expenses be handled in the consolidated balances for the year of acquisition?



97. Franklin, Inc. owns 80% of Prevatt Company. During the current year, a portion of the investment in Prevattis sold. Prior to recording the sale, Franklin adjusts the book value of its investment. What is the purpose of theadjustment?

98. How does a parent corporation account for the sale of a portion of an investment in a subsidiary?

99. Alonzo Co. acquired 60% of Beazley Corp. at a purchase price of $240,000. At the time of the acquisition,the book value of Beazley's net assets was $300,000. Required: Under the economic unit concept, what amount should have been assigned to the non-controllinginterest immediately after the combination?

100. Tosco Co. paid $540,000 for 80% of the stock of Martz Co. when the book value of Martz's net assets was$600,000. For all of Martz's assets and liabilities, book value and fair value were approximately equal. Required: Under the economic unit concept using the acquisition method, what amount of goodwill shouldappear on a consolidated balance sheet prepared immediately after the combination?



101. On January 1, 2009, Elva Corp. paid $750,000 for 80% of Fenton Co. when the book value of Fenton's netassets was $800,000. Fenton owned a building with a fair value of $150,000 and a book value of $120,000. Required: At what amount would the building appear on a consolidated balance sheet prepared immediatelyafter the combination, assuming Elva used the acquisition method?

102. Pennant Corp. owns 70% of the common stock of Scarvens Co. Scarvens' revenues for 2009 totaled$200,000. Required: What amount of Scarvens' revenues would be included in the consolidated total under the economicunit concept?

Caldwell Inc. acquired 65% of Club Corp. for $2,600,000. Club owned a building and equipment with ten-yearuseful lives. The book value of these assets was $830,000 and the fair value was $950,000. For Club's otherassets and liabilities, book value was equal to fair value. The total fair value of Club's net assets was$3,500,000.

103. Using the economic unit concept and acquisition method, determine the amount of goodwill associatedwith Caldwell's purchase of Club.

104. Using the economic unit concept, determine the amount of the non-controlling interest as of the date of theacquisition.



On January 1, 2009, Glenville Co. acquired an 80% interest in Acron Corp. for $500,000. The fair value ofAcron's net assets was $600,000 and Glenville will account for its interest using the acquisition method.

105. Determine the amount of goodwill to be recognized in this acquisition.

106. Determine the value assigned to the non-controlling interest as of the date of the acquisition.

On January 1, 2008, prior to the effective date of SFAS 141(R), Cranston Inc. reported net assets of$1,064,000, although equipment (with a four-year life) with a book value of $616,000 was worth $700,000.Peak Corp. paid $969,000 on that date for an 80% ownership interest in Cranston.Peak still owns its 80% interest in 2009.

107. What is the annual excess amortization using the parent company concept?

108. What is the consolidated goodwill balance on January 1, 2009, assuming the parent company concept isused?



On January 1, 2009, Jannison Inc. acquired 90% of Techron Co. by paying $477,000 cash. Techron Co.reported a Common Stock account balance of $140,000 and Retained Earnings of $280,000 at that date. The fairvalue of Techron Co. was appraised at $530,000. The total annual amortization was $11,000 as a result of thistransaction. The subsidiary earned $98,000 in 2009 and $126,000 in 2010 with dividend payments of $42,000each year. Without regard for this investment, Jannison had income of $308,000 in 2009 and $364,000 in 2010.Use the economic unit concept to account for this acquisition.

109. Prepare a proper presentation of consolidated net income for 2009.


111. What is the non-controlling interest balance as of December 31, 2010?



112. On January 1, 2009, Vacker Co. acquired 70% of Carper Inc. by paying $650,000. This included a $20,000control premium. Carper reported common stock on that date of $420,000 with retained earnings of $252,000.A building was undervalued in the company's financial records by $28,000. This building had a ten-yearremaining life. Copyrights of $80,000 were to be recognized and amortized over 20 years.Carper earned income and paid cash dividends as follows:

On December 31, 2011, Vacker owed $30,800 to Carper. There have been no changes in Carper's commonstock account since the acquisition. Required: If the equity method had been applied by Vacker for this acquisition, what were the consolidationentries needed as of December 31, 2011?

On January 1, 2009, John Doe Enterprises (JDE) bought a 55% interest in Bubba Manufacturing, Inc. (BMI).JDE paid for the transaction with $3 million cash and 500,000 shares of JDE common stock (par value $1.00 per share). At the time of the acquisition, BMI's book value was $16,970,000.On January 1, JDE stock had a market value of $14.90 per share and there was no control premium in thistransaction. Any consideration transferred over book value is assigned to goodwill. BMI had the following balances on January 1, 2009.

For internal reporting purposes, JDE employed the equity method to account for this investment.

113. Prepare a schedule to determine goodwill and the amortization and allocation amounts.



114. The following account balances are for the year ending December 31, 2009 for both companies.

Required: Prepare a consolidation worksheet for this business combination. Assume goodwill has beenreviewed and there is no goodwill impairment.

115. McLaughlin, Inc. acquires 70 percent of Ellis Corporation on September 1, 2009 and an additional 10 percent on November 1, 2010. Annual amortization of $8,400 attributed to the controlling interest relates to thefirst acquisition. Ellis reports the following figures for 2010:

Without regard for this investment, McLaughlin earns $480,000 in net income ($840,000 revenues less

$360,000 expenses earned and incurred evenly through the year) during 2010.Required: Prepare a proper schedule of consolidated net income and apportionment to non-controlling andcontrolling interests for 2010.



116. For each of the following situations, select the best answer concerning consolidating financial informationwhere there is a non-controlling interest in the subsidiary:(A) Economic unit concept.(B) Parent company concept.(C) Economic unit concept and parent company concept. _____ 1. Reflects the cost principle, but also assigns a value to the non-controlling interest shares at book value. _____ 2. Recognizes the non-controlling interest has a value to be reported, but since it is not a part of theexchange transaction, no new basis of accountability arises.

_____ 3. Recognizes that management effectively controls 100% of the net assets acquired and is thusaccountable for the entire fair value. _____ 4. The vast majority of consolidated financial statements in the U.S. are prepared under this concept for purchase business combinations. _____ 5. Requires the computation of an implied value. _____ 6. Recognizes the full fair value of partially owned acquisitions. _____ 7. Non-controlling interest is reported at an implied fair value. _____ 8. Non-controlling interest is reported at book value. _____ 9. Required by SFAS 141(R) Business Combinations.



ch4 Key

1. According to SFAS 160, Non-controlling Interests and Consolidated Financial Statements, a non-controlling

interest is most likely to be shown as part of equity under theA. Partial equity conceptB. Proportionate consolidation conceptC. Economic unit conceptD. Parent company conceptE. Proprietary concept

Difficulty: Easy

Hoyle - Chapter 04 #1

When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value of$70,000 and a fair value of $100,000.

Hoyle - Chapter 04

2. What amount should have been reported for the land on a consolidated balance sheet, according to SFAS141(R), assuming the economic unit concept was used?A. $70,000

B. $75,000C. $85,000D. $92,500E. $100,000

Difficulty: Easy Hoyle - Chapter 04 #2

3. What amount of excess land allocation would be included for the calculation of non-controlling interest,

according to SFAS 141(R)?A. $0B. $7,500C. $17,500D. $25,000E. $70,000

Difficulty: Easy




4. What amount should have been reported for the land on a consolidated balance sheet, assuming theinvestment was obtained prior to SFAS 141(R) and the parent company concept was used?A. $70,000B. $75,000C. $85,000D. $92,500E. $100,000

Difficulty: Medium


Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assetswas $1,850,000 and the book value was $1,500,000. The non-controlling interest shares of Float Corp. are notactively traded.

Hoyle - Chapter 04

5. What is the total amount of goodwill recognized according to the economic unit concept per SFAS 141 (R)?A. $150,000B. $250,000C. $0D. $120,000E. $170,000

Difficulty: Medium


6. What amount of goodwill should be attributed to Perch according to the economic unit concept per SFAS141(R)?A. $150,000B. $250,000C. $0D. $120,000E. $170,000

Difficulty: Medium




7. What amount of goodwill should be attributed to the non-controlling interest according to the economic unitconcept per SFAS 141(R)?A. $0B. $20,000C. $30,000D. $100,000E. $120,000

Difficulty: Medium


8. What is the dollar amount of non-controlling interest which should appear on a balance sheet preparedimmediately after consolidation according to the economic unit concept per SFAS 141(R)?A. $350,000B. $300,000C. $400,000D. $370,000

E. $0

Difficulty: Medium Hoyle - Chapter 04 #8

9. What is the dollar amount of Float Corp.'s net assets that would be represented on a balance sheet preparedimmediately after consolidation according to the economic unit concept per SFAS 141(R)?A. $1,600,000B. $1,480,000C. $1,200,000D. $1,780,000E. $1,850,000

Difficulty: Medium


10. What is the dollar amount of non-controlling interest which should appear on a balance sheet preparedimmediately after consolidation according to the parent company concept?A. $350,000

B. $300,000C. $400,000D. $250,000E. $0

Difficulty: Medium




Femur Co. owns 70% of the voting common stock of Harbor Corp. During 2009, Harbor had revenues of$2,500,000 and expenses of $2,000,000. The amortization of excess cost allocations totaled $60,000 in 2009.Femur Co. accounts for its consolidations according to SFAS 141(R) and SFAS 160.

Hoyle - Chapter 04

11. The non-controlling interest's share of the earnings of Harbor Corp. is calculated to beA. $132,000B. $150,000C. $168,000D. $160,000E. $0

Difficulty: Medium


12. What is the net effect of the inclusion of Harbor on consolidated net income for 2009?A. $350,000B. $308,000C. $500,000D. $440,000E. $290,000

Difficulty: Medium


Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2009. For 2009, Kaileyreported revenues of $800,000 and expenses of $620,000. The annual amount of amortization related to thisacquisition was $15,000. Denber Co. accounts for its consolidations according to SFAS 141(R) and SFAS 160.

Hoyle - Chapter 04

13. In consolidation, the total amount of expenses related to Kailey and to Denber's acquisition of Kailey for

2009 is determined to beA. $206,667B. $211,667C. $221,667D. $620,000E. $635,000

Difficulty: Medium




14. The impact of the consolidation on consolidated net income for 2009 is determined to beA. $31,000B. $33,000C. $55,000D. $60,000E. $39,000

Difficulty: Medium


15. The non-controlling interest's share of Denber's income for 2009 is calculated to beA. $22,000B. $24,000C. $48,000D. $66,000E. $72,000

Difficulty: Medium


16. MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in a business combination thatresulted in the recognition of goodwill. Nomes owned a piece of land that cost $250,000 but was worth$600,000 at the date of purchase. What value would be attributed to this land in a consolidated balance sheet atthe date of takeover, according to the economic unit concept per SFAS 141(R) and the parent company concept per SFAS 141?

A. Entry AB. Entry BC. Entry CD. Entry DE. Entry E

Difficulty: Medium




17. Kordel Inc. holds 75% of the outstanding common stock of Raxston Corp. Raxston currently owes Kordel$500,000 for inventory acquired over the past few months. In preparing consolidated financial statements, whatamount of this debt should be eliminated?A. $375,000B. $125,000C. $300,000D. $500,000E. $0

Difficulty: Easy


Royce Co. acquired 60% of Park Co. for $420,000 when Park's book value was $560,000. On that date, Parkhad equipment (with a ten-year life) that was undervalued in the financial records by $140,000. Two years later,the following figures were reported by the two companies (stockholders' equity accounts have been omittedfrom their separate operations). Royce accounts for its consolidations according to SFAS 141(R) and SFAS160.

Hoyle - Chapter 04

18. What is consolidated net income that is attributable to Royce's controlling interest?A. $686,000B. $560,000C. $644,000D. $635,600E. $691,600

Difficulty: Medium


19. What is the non-controlling interest's share of the subsidiary's net income and what is the ending balance ofthe non-controlling interest in the subsidiary?A. $50,400 and $324,800B. $53,648 and $304,500C. $56,000 and $296,800

D. $52,640 and $313,600E. $55,270 and $297,300

Difficulty: Hard




20. What is the consolidated balance of the Equipment account?A. $666,400B. $604,000C. $756,000D. $711,200E. $764,000

Difficulty: Medium


On January 1, 2009, Palk Corp. and Spraz Corp. had condensed balance sheets as follows:On January 2, 2009, Palk borrowed $84,000 to acquire 90% of the outstanding common shares of Spraz. Thiswas to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2009. The excessconsideration transferred over the underlying book value of the acquired net assets was allocated 60% toinventory and 40% to goodwill. Palk accounts for its consolidations according to SFAS 141(R) and SFAS 160.

Hoyle - Chapter 04

21. What is consolidated current assets as of January 2, 2009?A. $138,600B. $134,400C. $126,000D. $140,000E. $127,400

Difficulty: Medium


22. What is consolidated noncurrent assets as of January 2, 2009?A. $182,000B. $190,400C. $187,600D. $191,333E. $189,000

Difficulty: Medium




23. What is consolidated current liabilities as of January 2, 2009?A. $70,000B. $56,000C. $64,400D. $42,000E. $58,100

Difficulty: Medium


24. Under the economic unit concept, which of the following statements is true about consolidated financialstatements?A. The accounting emphasis in preparing consolidated financial statements is placed on the businesscombination being formedB. The accounting emphasis in preparing consolidated financial statements is placed on the parent's investmentC. The objective of consolidated financial statements is to serve as a report to the stockholders of the parentcompany

D. The economic unit concept is a hybrid of the proportionate consolidation concept and the parent companyconceptE. The economic unit concept is no longer allowed according to SFAS 141(R)


25. Under the proportionate consolidation concept, which of the following statements is true about consolidatedfinancial statements?A. The accounting emphasis in preparing consolidated financial statements is placed on the businesscombination being formedB. Holding control of a subsidiary provides the parent with an indivisible interest in that companyC. The objective of consolidated financial statements is to serve as a report to the stockholders of the parentcompanyD. The proportionate consolidation concept is a hybrid of the economic unit concept and the parent companyconceptE. The proportionate consolidation concept is no longer allowed according to SFAS 141(R)




26. Under the parent company concept, which of the following statements is false about consolidated financialstatements?A. Holding control of a subsidiary provides the parent with an indivisible interest in that companyB. Consolidated financial statements are produced primarily for the benefit of the parent company stockholdersC. The non-controlling interest is calculated at book value amountsD. A portion of the subsidiary net assets is valued at book value and a portion is valued at fair valueE. All of the subsidiary net assets are valued at fair value

Difficulty: Medium


27. When a parent uses the equity method throughout the year to account for investment in a subsidiary, whichof the following statements is false before making adjustments on the consolidated worksheet?A. Parent company net income equals controlling interest in consolidated net incomeB. Parent company retained earnings equals consolidated retained earningsC. Parent company total assets equals consolidated total assetsD. Parent company dividends equals consolidated dividends

E. Goodwill may need to be recorded


28. When a parent uses the initial value method throughout the year to account for investment in a subsidiary,which of the following statements is true before making adjustments on the consolidated worksheet?A. Parent company net income equals consolidated net incomeB. Parent company retained earnings equals consolidated retained earningsC. Parent company total assets equals consolidated total assetsD. Parent company dividends equals consolidated dividendsE. Goodwill is never recognized

Difficulty: Medium




29. When a parent uses the partial equity method throughout the year to account for investment in a subsidiary,which of the following statements is false before making adjustments on the consolidated worksheet?A. Parent company net income will equal controlling interest in consolidated net income when initial value, book value and fair value of the investment are equalB. Parent company net income will exceed controlling interest in consolidated net income when fair valueacquired exceeds book valueC. Parent company net income will be less than controlling interest in consolidated net income when fair valueacquired exceeds book value

D. Goodwill will be recognized if acquisition value exceeds fair valueE. Subsidiary net assets are valued at their book values

Difficulty: Hard


30. In a step acquisition, using the economic unit concept per SFAS 141(R), which of the following statementsis false?A. The acquisition method views a step acquisition essentially the same as a single step acquisition

B. Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year C. Income from subsidiary is computed for the entire year for a new purchase acquired during the year D. Obtaining control through a step acquisition is a significant re-measurement eventE. Pre-acquisition earnings are not included on the consolidated income statement


31. Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing commonstock and using the economic unit concept?A. The parent recognizes a larger percent of income from subsidiaryB. A step acquisition resulting in control may result in a parent recognizing a gain on revaluationC. The book value of the subsidiary will increaseD. The parent's percent ownership in subsidiary will increaseE. Non-controlling interest in subsidiary's net income will decrease

Difficulty: Medium




32. When a subsidiary is acquired sometime after the first day of the fiscal year, which of the followingstatements is true?A. Income from subsidiary is not recognized until there is an entire year of consolidated operationsB. Income from subsidiary is recognized from date of acquisition to year-endC. Excess cost over acquisition value is recognized at the beginning of the fiscal year D. No goodwill can be recognizedE. Income from subsidiary is recognized for the entire year

Difficulty: Easy


33. When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, whichof the following statements is true in the presentation of consolidated financial statements?A. Purchased pre-acquisition earnings are deducted from combined revenues and expensesB. Purchased pre-acquisition earnings are added to combined revenues and expensesC. Purchased pre-acquisition earnings are deducted from the beginning consolidated stockholders' equityD. Purchased pre-acquisition earnings are added to the beginning consolidated stockholders' equity

E. Purchased pre-acquisition earnings are ignored on the consolidated income statement


34. When a parent uses the acquisition method for business combinations and sells shares of its subsidiary,which of the following statements is false?A. If majority control is still maintained, consolidated financial statements are still requiredB. If majority control is not maintained but significant influence exists, the equity method to account for theinvestment is still used but consolidated financial statements are not requiredC. If majority control is not maintained but significant influence exists, the equity method is still used toaccount for the investment and consolidated financial statements are still requiredD. If majority control is not maintained and significant influence no longer exists, a prospective change inaccounting principle to the fair value method is requiredE. A gain or loss calculation must be prepared if control is lost

Difficulty: Medium




35. All of the following statements regarding the sale of subsidiary shares are true except which of thefollowing?A. The use of specific identification based on serial number is acceptableB. The use of the FIFO assumption is acceptableC. The use of the averaging assumption is acceptableD. The use of specific LIFO assumption is acceptableE. The parent company must determine whether consolidation is still appropriate for the remaining sharesowned

Difficulty: Medium


36. Which of the following statements is true regarding the sale of subsidiary shares when using the acquisitionmethod for accounting for business combinations?A. If control continues, the difference between selling price and acquisition value is recorded as a realized gainor lossB. If control continues, the difference between selling price and acquisition value is an unrealized gain or loss

C. If control continues, the difference between selling price and carrying value is recorded as an adjustment toadditional paid-in capitalD. If control continues, the difference between selling price and carrying value is recorded as a realized gain orlossE. If control continues, the difference between selling price and carrying value is recorded as an adjustment toretained earnings


37. When using the acquisition method for accounting for business combinations, all of the followingstatements are false regarding the sale of subsidiary shares except :A. If control ceases to exist and significant influence ceases to exist, the difference between selling price andacquisition value is recorded as a realized gain or lossB. If control ceases to exist and significant influence ceases to exist, the difference between selling price andacquisition value is recorded as an unrealized gain or lossC. If control ceases to exist and significant influence ceases to exist, the difference between selling price andcarrying value is recorded as a realized gain or lossD. If control ceases to exist and significant influence ceases to exist, the difference between selling price andcarrying value is recorded as an unrealized gain or lossE. If control ceases to exist and significant influence ceases to exist, the difference between selling price andcarrying value is recorded as an adjustment to retained earnings

Difficulty: Medium





Difficulty: Medium



Difficulty: Medium


42. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Equipment account?A. $4,000 increaseB. $4,000 decreaseC. $3,600 increaseD. $3,600 decreaseE. No change


43. In consolidation at December 31, 2009, what adjustment is necessary for Hogan's Equipment account?A. $3,000 increaseB. $3,000 decreaseC. $2,700 increaseD. $2,700 decreaseE. No change

Difficulty: Medium




44. In consolidation at December 31, 2010, what adjustment is necessary for Hogan's Equipment account?A. $2,000 increaseB. $2,000 decreaseC. $1,800 increaseD. $1,800 decreaseE. No change

Difficulty: Medium


45. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Land account?A. $7,000 increaseB. $7,000 decreaseC. $6,300 increaseD. $6,300 decreaseE. No change

Difficulty: Medium





Difficulty: Medium




48. In consolidation at January 1, 2009, what adjustment is necessary for Hogan's Patent account?A. $7,000B. $6,300C. $0D. $11,000E. $9,900

Difficulty: Medium


49. In consolidation at December 31, 2009, what net adjustment is necessary for Hogan's Patent account?A. $5,600B. $8,800C. $0D. $7,700E. $7,000

Difficulty: Medium


50. In consolidation at December 31, 2010, what net adjustment is necessary for Hogan's Patent account?A. $4,200B. $5,500C. $0D. $6,600E. $88,000



Assume the equity method is applied.

Hoyle - Chapter 04




Difficulty: Medium



Difficulty: Medium





Difficulty: Medium





Assume the initial value method is applied.

Hoyle - Chapter 04

63. Compute Bell's investment in Demers at December 31, 2009.A. $500,000B. $574,400

C. $625,000D. $542,400E. $532,000

Difficulty: Easy



C. $592,400D. $500,000E. $572,000

Difficulty: Easy


65. Compute Bell's investment in Demers at December 31, 2011.A. $592,400

B. $500,000C. $625,000D. $676,000E. $620,000

Difficulty: Easy





Difficulty: Medium



Difficulty: Medium





Difficulty: Easy





Difficulty: Medium



Difficulty: Medium





Difficulty: Medium





Difficulty: Medium


Bell Company acquires 80% of Demers Company for $500,000 on January 1, 2009. Demers reported commonstock of $300,000 and retained earnings of $200,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess considerationtransferred over fair value was attributed to goodwill with an indefinite life.Demers earns income and pays dividends as follows:

Assume the partial equity method is applied.

Hoyle - Chapter 04




C. $580,000D. $604,000E. $572,000

Difficulty: Medium





Difficulty: Medium



Difficulty: Easy





Difficulty: Easy





Difficulty: Easy



Difficulty: Medium





Difficulty: Medium





Difficulty: Medium



Difficulty: Medium


Ross Company acquired 90% of Parsons Company several years ago and recorded goodwill of $200,000 at thatdate. During 2009 an analysis of the fair market value of Parson's assets determined an impairment of goodwillin the amount of $50,000.

Hoyle - Chapter 04

87. At what amount would consolidated goodwill be reported for 2009?A. $150,000B. $200,000C. $50,000D. $0E. $135,000

Difficulty: Easy




88. What journal entry would be made by Ross regarding its investment in Parsons impairment of goodwill?

A. Journal entry AB. Journal entry BC. Journal entry CD. Journal entry DE. Journal entry E

Difficulty: Medium


89. Under the economic unit concept and according to SFAS 160, where would the non-controlling interestappear on the consolidated balance sheet?

The non-controlling interest would appear as a part of stockholders' equity where it would be clearly identified,labeled and distinguished from the parent's controlling interest in subsidiaries.

Difficulty: Easy


90. What is pre-acquisition income?

When a company acquires control of a subsidiary during a fiscal year, pre-acquisition income is the incomeattributed to the previous owners of the shares of the common stock for the portion of the year before theacquisition.




91. Shedds Corp. owns less than one hundred percent of the voting common stock of Beta Co. Under whatconditions will Shedds be required to prepare consolidated financial statements?

Shedds will be required to prepare consolidated financial statements if it has control of Beta. If Shedds has morethan 50% of the voting common stock of Beta, it has control and must prepare consolidated financialstatements. Occasionally, ownership of less than 50% of the voting common stock can confer control. In thissituation, an argument can be made that the company with control should prepare consolidated financial

statements, although not required currently.

Difficulty: Medium


92. Where may a non-controlling interest be presented on a consolidated balance sheet?

According to SFAS 160, a non-controlling interest must be shown on the balance sheet as a part of stockholdersequity. It may no longer be shown between liabilities and stockholders' equity or classified as neither.

Difficulty: Medium


93. A theory related to consolidation of a subsidiary is the economic unit concept. What are the theoreticalarguments on which the economic unit concept is based?

The economic unit concept emphasizes the business combination being formed, rather than the parentcompany's investment. The subsidiary and its accounts cannot be divided along ownership lines. The controlledcompany must be consolidated as a whole. The subsidiary is perceived as an indivisible part of the consolidated

entity. The income statement will show all the income that is generated by the net assets under the control of the parent company.

Difficulty: Medium


94. How would you determine the amount of goodwill to be recognized at date of acquisition when there is anon-controlling interest present and the economic unit concept is used?

The amount of goodwill to be recognized is calculated by subtracting the non-controlling interest's proportionate fair value of the net assets of the acquired entity from the fair value of the non-controlling interestas evidenced by the parent's consideration transferred for its own share of ownership.




95. How is a non-controlling interest in the net income of an entry reported in the income statement under theeconomic unit concept?

The non-controlling interest would appear as a clearly identifiable portion of consolidated net income such thatthe controlling portion plus the non-controlling portion equals the consolidated net income presented.

Difficulty: Medium


96. One company buys a controlling interest in another company on April 1. How should the pre-acquisitionsubsidiary revenues and expenses be handled in the consolidated balances for the year of acquisition?

Only post-acquisition revenues and expenses are included in consolidated totals. The non-controlling interest isthereby viewed as beginning as of the acquisition date.

Difficulty: Medium


97. Franklin, Inc. owns 80% of Prevatt Company. During the current year, a portion of the investment in Prevattis sold. Prior to recording the sale, Franklin adjusts the book value of its investment. What is the purpose of theadjustment?

If control is maintained after the sale, then the difference between the sales proceeds and the book value is anadjustment to the parent's owners' equity. If control is not maintained, then such difference is a gain or loss onsale of investment. In either situation, the book value of the investment should be on the equity method basis inorder to calculate the proper entry for the sale. Therefore, if Franklin adjusts the book value of its investment, it

is in order to bring an initial value method or partial equity method investment basis to an equity method basis.


98. How does a parent corporation account for the sale of a portion of an investment in a subsidiary?

If control is maintained after the sale, then the difference between the sales proceeds and the book value is anadjustment to the parent's owners' equity (APIC). If control is not maintained, then such difference is a gain or

loss on sale of investment. In either situation, the book value of the investment should be on the equity method basis in order to calculate the proper entry for the sale. Therefore, if the investment has been kept under theinitial value or the partial equity method, the investor adjusts the book value of its investment in order to bringan initial value method or partial equity method investment basis to an equity method basis.




99. Alonzo Co. acquired 60% of Beazley Corp. at a purchase price of $240,000. At the time of the acquisition,the book value of Beazley's net assets was $300,000. Required: Under the economic unit concept, what amount should have been assigned to the non-controllinginterest immediately after the combination?

Difficulty: Medium


100. Tosco Co. paid $540,000 for 80% of the stock of Martz Co. when the book value of Martz's net assets was$600,000. For all of Martz's assets and liabilities, book value and fair value were approximately equal. Required: Under the economic unit concept using the acquisition method, what amount of goodwill shouldappear on a consolidated balance sheet prepared immediately after the combination?

Difficulty: Medium


101. On January 1, 2009, Elva Corp. paid $750,000 for 80% of Fenton Co. when the book value of Fenton's netassets was $800,000. Fenton owned a building with a fair value of $150,000 and a book value of $120,000. Required: At what amount would the building appear on a consolidated balance sheet prepared immediately

after the combination, assuming Elva used the acquisition method?

Difficulty: Medium




102. Pennant Corp. owns 70% of the common stock of Scarvens Co. Scarvens' revenues for 2009 totaled$200,000. Required: What amount of Scarvens' revenues would be included in the consolidated total under the economicunit concept?

Difficulty: Medium


Caldwell Inc. acquired 65% of Club Corp. for $2,600,000. Club owned a building and equipment with ten-yearuseful lives. The book value of these assets was $830,000 and the fair value was $950,000. For Club's otherassets and liabilities, book value was equal to fair value. The total fair value of Club's net assets was$3,500,000.

Hoyle - Chapter 04

103. Using the economic unit concept and acquisition method, determine the amount of goodwill associatedwith Caldwell's purchase of Club.

Difficulty: Medium


104. Using the economic unit concept, determine the amount of the non-controlling interest as of the date of theacquisition.

Difficulty: Medium


On January 1, 2009, Glenville Co. acquired an 80% interest in Acron Corp. for $500,000. The fair value ofAcron's net assets was $600,000 and Glenville will account for its interest using the acquisition method.

Hoyle - Chapter 04



105. Determine the amount of goodwill to be recognized in this acquisition.


106. Determine the value assigned to the non-controlling interest as of the date of the acquisition.


On January 1, 2008, prior to the effective date of SFAS 141(R), Cranston Inc. reported net assets of$1,064,000, although equipment (with a four-year life) with a book value of $616,000 was worth $700,000.Peak Corp. paid $969,000 on that date for an 80% ownership interest in Cranston.Peak still owns its 80% interest in 2009.

Hoyle - Chapter 04

107. What is the annual excess amortization using the parent company concept?




108. What is the consolidated goodwill balance on January 1, 2009, assuming the parent company concept isused?

Difficulty: Medium


On January 1, 2009, Jannison Inc. acquired 90% of Techron Co. by paying $477,000 cash. Techron Co.reported a Common Stock account balance of $140,000 and Retained Earnings of $280,000 at that date. The fairvalue of Techron Co. was appraised at $530,000. The total annual amortization was $11,000 as a result of thistransaction. The subsidiary earned $98,000 in 2009 and $126,000 in 2010 with dividend payments of $42,000each year. Without regard for this investment, Jannison had income of $308,000 in 2009 and $364,000 in 2010.Use the economic unit concept to account for this acquisition.

Hoyle - Chapter 04






Difficulty: Medium


111. What is the non-controlling interest balance as of December 31, 2010?




112. On January 1, 2009, Vacker Co. acquired 70% of Carper Inc. by paying $650,000. This included a $20,000control premium. Carper reported common stock on that date of $420,000 with retained earnings of $252,000.A building was undervalued in the company's financial records by $28,000. This building had a ten-yearremaining life. Copyrights of $80,000 were to be recognized and amortized over 20 years.Carper earned income and paid cash dividends as follows:

On December 31, 2011, Vacker owed $30,800 to Carper. There have been no changes in Carper's commonstock account since the acquisition. Required: If the equity method had been applied by Vacker for this acquisition, what were the consolidationentries needed as of December 31, 2011?

From the acquisition value, $28,000 was allocated based on the fair value of the building. With a ten-yearremaining life, amortization will be $2,800 per year of which $1,960 is attributed to the controlling interest.Copyright amortization would have been $4,000 per year of which $2,800 is attributed to the controllinginterest.

Difficulty: Hard




On January 1, 2009, John Doe Enterprises (JDE) bought a 55% interest in Bubba Manufacturing, Inc. (BMI).JDE paid for the transaction with $3 million cash and 500,000 shares of JDE common stock (par value $1.00 per share). At the time of the acquisition, BMI's book value was $16,970,000.On January 1, JDE stock had a market value of $14.90 per share and there was no control premium in thistransaction. Any consideration transferred over book value is assigned to goodwill. BMI had the following balances on January 1, 2009.

For internal reporting purposes, JDE employed the equity method to account for this investment.

Hoyle - Chapter 04

113. Prepare a schedule to determine goodwill and the amortization and allocation amounts.

Difficulty: Medium




114. The following account balances are for the year ending December 31, 2009 for both companies.

Required: Prepare a consolidation worksheet for this business combination. Assume goodwill has beenreviewed and there is no goodwill impairment.



Consolidation Worksheet for John Doe Enterprises and Bubba Manufacturing at 12/31/09.CONSOLIDATED WORKSHEET AcquisitionFor the year ended 12/31/2009

Difficulty: Medium




115. McLaughlin, Inc. acquires 70 percent of Ellis Corporation on September 1, 2009 and an additional 10 percent on November 1, 2010. Annual amortization of $8,400 attributed to the controlling interest relates to thefirst acquisition. Ellis reports the following figures for 2010:

Without regard for this investment, McLaughlin earns $480,000 in net income ($840,000 revenues less$360,000 expenses earned and incurred evenly through the year) during 2010.Required: Prepare a proper schedule of consolidated net income and apportionment to non-controlling andcontrolling interests for 2010.

* Amortization of $12,000 = original $8,400 for 70% grossed up to the 100% amount of $12,000.

Difficulty: Medium




116. For each of the following situations, select the best answer concerning consolidating financial informationwhere there is a non-controlling interest in the subsidiary:(A) Economic unit concept.(B) Parent company concept.(C) Economic unit concept and parent company concept. _____ 1. Reflects the cost principle, but also assigns a value to the non-controlling interest shares at book value. _____ 2. Recognizes the non-controlling interest has a value to be reported, but since it is not a part of theexchange transaction, no new basis of accountability arises.

_____ 3. Recognizes that management effectively controls 100% of the net assets acquired and is thusaccountable for the entire fair value. _____ 4. The vast majority of consolidated financial statements in the U.S. are prepared under this concept for purchase business combinations. _____ 5. Requires the computation of an implied value. _____ 6. Recognizes the full fair value of partially owned acquisitions. _____ 7. Non-controlling interest is reported at an implied fair value. _____ 8. Non-controlling interest is reported at book value. _____ 9. Required by SFAS 141(R) Business Combinations.

(1) B; (2) B; (3) A; (4) B; (5) A; (6) A; (7) A; (8) B; (9) A

Difficulty: Medium




ch4 Summary

Category # of Questions

Difficulty: Easy 18

Difficulty: Hard 3Difficulty: Medium 95

Hoyle - Chapter 04 132

Ch4 Test Bank

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