Test bank advanced accounting 10e by beams chapter 09

Page Corporation acquired a 60% interest in Ace Corporation at a price $40,000 in excess of book value and fair value on January 1, 2005.. On the same date, Ace acquired a 70% interest i

Chapter 9 Test Bank INDIRECT AND MUTUAL HOLDINGS

Multiple Choice Questions

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1 Pallet Corporation owns 80% of Adelt Corporation and Adelt owns

60% of Bajo Inc Which of the following is correct?

a Bajo should not be consolidated because minority interests hold 52%

b Bajo should be consolidated because the 60% of Bajo stock

is held in the affiliate structure

c Pallet has 8% indirect ownership of Bajo

d Pallet has 80% indirect ownership of Bajo

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2 Page Corporation acquired a 60% interest in Ace Corporation at

a price $40,000 in excess of book value and fair value on January 1, 2005 On the same date, Ace acquired a 70% interest

in Bader Corporation at a price $30,000 in excess of book value and fair value The excess purchase cost paid by Page and Acewas attributed to goodwill Separate incomes (excluding investment income) for the three affiliates for 2005 are as follows: Page, $500,000, Ace, $300,000, and Bader, $400,000 Page’s net income for 2005 is

Use the following information in answering questions 3, 4, and 5

Paint Corporation owns 82% of Achille corporation and AchilleCorporation owns 80% of Badrack Corporation For the current year,the separate incomes of Paint, Achille, and Badrack are $120,000,

$100,000, and $50,000, respectively

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5 Consolidated net income for Paint Corporation and Subsidiaries

can be determined by the equation:

6 Pabari Corporation owns an 80% interest in Alders Corporation

and Alders owns a 60% interest in Babao Corporation Both interests were acquired at book value equal to fair value During 2005, Alders sells land to Babao at a profit of $12,000 Babao still holds the land at December 31, 2005 Profits and (losses) of the three companies for 2005 are:

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7 Pablo Corporation acquired 60% of Abagia Corporation on January

1, 2004, at a cost of $20,000 in excess of book value Also, on July 1, 2004, Pablo acquired 60% of Babin Corporation at book value On January 1, 2005, Abagia acquired a 20% interest in Babin at a cost of $10,000 in excess of book value The excess purchase costs paid by Pablo and Abagia were attributed to goodwill

On July 1, 2005, Pablo sold land with a book value of $20,000

to Abagia for $40,000 The $20,000 unrealized gain is included

in Pablo’s separate income Separate incomes for the affiliated companies (excluding investment income) for 2005 are:

Use the following information for Questions 8, and 9

Paisley Corporation owns 90% of Ackers Company Akers Company owns 60% of Baglin Paisley’s separate income for the current year is

$540,000 Akers’s separate income is $240,000 Baglin’s separate income is $150,000

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10 Paglia Corporation owns 80% of Aburn Corporation and has

separate income of $200,000 for 2005 Aburn Corporation has separate income of $100,000 and owns 70% of the outstanding stock of Badley Corporation Badley Corporation has separate income of $80,000 The correct amount of consolidated net income is

Use the following information for Questions 11, 12, and 13

Pace Corporation owns 70% of Abaza Corporation and 60% of Babon Corporation Abaza Corporation owns 20% of Babon Corporation Pace’s investment in Abaza was consummated in one transaction at a purchase price $20,000 in excess of the book value Pace’s purchase of Babon was made in one transaction at a price $30,000 above book value Abaza’s investment in Babon was completed in one transaction at a purchase price $10,000 in excess of the book value The purchase price differential for all three investments was attributable to goodwill Pace’s separate income for the current year is $100,000 Abaza’s separate income is $190,000, which includes a $10,000 unrealized loss on the sale of land to Pace Babon’s separate income

is $150,000

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11 The amount of consolidated net income for Pace Corporation and

Abaza for the current year is

Use the following information for Questions 14 through 18

Pahm Corporation owns 80% of the outstanding voting common stock of Abussi Corporation, which was purchased for $60,000 over Abussi’s book value The excess purchase price was attributable to goodwill Abussi Corporation owns 60% of the outstanding common stock of BadockCorporation, which was purchased at book value The separate incomes

of Pahm, Abussi, and Badock for the year are $200,000, $240,000, and

15 The amount of income for the current year assigned to the

minority shareholders of Badock Corporation is

16 The amount of income for the current year assigned to the

minority shareholders of Abussi Corporation is

17 The amount of income assigned to the noncontrolling interest in

the current year’s consolidated income statement is

18 The net income recorded on the books of Pahm Corporation for

the current year is

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$100,000, Ackroyd Corporation, $50,000, and Bailey Corporation,

$30,000

Notations for question 19 are:

P = Income of Paiva on a consolidated basis

A = Income of Ackroyd on a consolidated basis

B = Income of Bailey on a consolidated basis LO2

19 The equation, in a set of simultaneous equations, that computes

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Exercise 1

Paice Corporation owns 80% of the voting common stock of AccardiCorporation and 60% of the voting common stock of Badger Corporation Accardi owns 20% of the voting common stock of Badger There are no cost-book differentials to consider The separate incomes of these affiliated companies for 2005 are:

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Abdoo Corporation acquired a 60% interest in Bach Corporation on July

1, 2004 for $180,000 when Bach had Capital Stock of $200,000 and Retained Earnings of $50,000 On January 1, 2005, Abdoo acquired a 70% interest in Cabo Corporation for $270,000 when Cabo had Capital Stock of $250,000 and Retained Earnings of $100,000

No change in outstanding stock of any of the affiliated companies has occurred since the investments were made All cost-book differentials are goodwill The stockholders’ equity section of the separate balance sheets of Abdoo, Bach, and Cabo at December 31, 2005 are as follows:

Abdoo Bach Cabo Capital Stock $ 600,000 $ 200,000 $ 250,000 Retained Earnings 280,000 140,000 130,000 Total stockholders’ equity $ 880,000 $ 340,000 $ 380,000 Required:

1 Compute the amount at which goodwill should be shown in the consolidated balance sheet of Pacini Corporation and Subsidiaries at December 31, 2005

2 Pacini and Abdoo have applied the equity method correctly Determine the balances of the three investment accounts at December 31, 2005

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Exercise 3

Paik Corporation owns 80% of Acdol Corporation and 60% of Ben Corporation Acdol Corporation owns 10% of Ben Corporation All subsidiary investments were acquired at book value equal to fair value Separate incomes (excluding investment income) of the affiliated companies for 2005 are:

Paik: $600,000 which includes $60,000 unrealized losses on inventory

items sold to Ben

$300,000, $100,000, $200,000, and $300,000, respectively All of the investments were made at times when the investee’s book values were equal to their fair values

Required:

Determine the consolidated net income and noncontrolling interest expense for Packer Corporation and Subsidiaries for the current year

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Exercise 5

On January 1, 2005 Paki Inc bought 75% interest in Adam Corporation

At the time of purchase, Adam owned 80% of Baird Company and 10% of Castle Corporation In all acquisitions the book value equals the fair value Separate earnings for the three affiliates for 2005 are

as follows:

Earnings

Dividends Paki Company $ $400,000 $150,000

Required:

Compute consolidated net income and noncontrolling interest expense for Paki for 2005

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Exercise 6

Paco Corporation owns 90% of Aber Corporation, Aber Corporation owns 85% of Back Corporation, and Back Corporation owns 5% of AberCorporation The separate incomes (excluding investment income), of Paco, Aber, and Back are $100,000, $40,000, and $55,000, respectively

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Exercise 7

Paine Corporation owns 90% of Achan Corporation, Achan Corporation owns 85% of Badge Corporation, and Badge Corporation owns 5% of AchanCorporation The separate incomes (excluding investment income), of Paine, Achan, and Badge are $400,000, $160,000, and $220,000, respectively

Percentage Interest

in Bain Palace Company $ 450,000 80%

Bain Corporation 160,000 10%

Required:

Compute consolidated net income for Palace for 2005

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$80,000, respectively

Required:

Calculate the consolidated net income for Padhy Corporation and its subsidiaries, Abrams and Bacud Use the conventional method for your solution

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Exercise 10

Padua Corporation owns 80% of Able Corporation, Able Corporation owns 60% of Baden Corporation, and Baden Corporation owns 10% of PaduaCorporation The separate incomes (excluding investment income), of Padua, Able, and Baden are $300,000, $100,000, and $80,000, respectively

Required:

Calculate the consolidated net income for Padua Corporation and its subsidiaries, Able and Baden Use the treasury stock method for your solution

( 280,000 )Allocate 60% of Ace to Page 348,000 ( 348,000 )

Page’s net income $ 848,000

From Achille: (.18)x[$100,000 + (.80)x($50,000)] $ 25,200

Combined separate incomes $ 270,000 Less: Noncontrolling interest expense ( 36,200 )Consolidated net income $ 234,800

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income to Pabari

33,600

( 33,600 ) Consolidated net income $ 213,600

Allocate Babin’s income:

Plus: Unrealized loss on

Separate realized incomes $ 100,000 $ 200,000 $ 150,000

Allocate Babon’s income:

( 161,000 )

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Pahm Abussi Badock Separate incomes $ 200,000 $ 240,000 $ 260,000 Allocate Badock’s income:

60% to Abussi 156,000 ( 156,000 )Subtotal $ 200,000 $ 396,000 $ 104,000 Allocate Abussi’s net income

to Pahm $396,000 x 80%

316,800

( 316,800 )

18 b Pahm’s separate net income is the same as the

consolidated net income

A = $50,000 + 8 x ($30,000 + 1A)

A = $50,000 + $24,000 + 08S

A = $80,435 (rounded) Noncontrolling interest expense

Ackroyd: $80,435 x 10% outside interest $ 8,044

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Exercise 1

Paice Corporation and Subsidiaries Income Allocation Schedule For the year 2005 Paice Accardi Badger Separate earnings $ 300,000 $ 160,000 $ 120,000

Allocate Badger’s income:

($250,000 x 60%) book value acquired 30,000

Abdoo’s investment in Cabo: Goodwill at acquisition: $270,000 cost –

($350,000 x 70%) book value acquired 25,000

Total goodwill on December 31, 2005 $ 115,000

Requirement 2:

Pacini Abdoo’s books

in Abdoo

Bach: ($90,000 x 60%) 54,000

Investment account balance $ 764,000 $ 234,000 $ 291,000

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Plus: Unrealized loss on

inventory sales to Ben 60,000

Less: Unrealized profits

on land sold to Acdol

( 100,000 )Separate realized incomes 660,000 360,000 240,000

60% to Paik 144,000 ( 144,000 )

10% to Acdol 24,000 ( 24,000 )

Subtotal $ 804,000 $ 384,000 $ 72,000

Allocate Acdol to Paik 307,200 ( 307,200 )

Consolidated net income $ 1,111,200

Noncontrolling interest $0 $22,000 $60,000

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Exercise 5

Castle is not consolidated because the ownership percentage is less

than 20% and no evidence of control is given

Paki Adam Baird Separate incomes $ 400,000 $ (50,000 ) $ 100,000

Noncontrolling interest in Baird $ 20,000

Noncontrolling interest in Adam 7,500

Noncontrolling interest expense $ 27,500

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Exercise 6

Equations:

P = Income of Paco on a consolidated basis

A = Income of Aber on a consolidated basis

B = Income of Back on a consolidated basis

P = $100,000 + 90A

A = $ 40,000 + 85B

B = $ 55,000 + 05A Computations:

P = Income of Paine on a consolidated basis

A = Income of Achan on a consolidated basis

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Exercise 8

Equations:

P = Income of Palace on a consolidated basis

A = Income of Acres on a consolidated basis

B = Income of Bain on a consolidated basis

P = $450,000 + 8A

A = $200,000 + 7B

B = $160,000 + 1A Computations:

P = Income of Padhy on a consolidated basis

A = Income of Abrams on a consolidated basis

B = Income of Bacud on a consolidated basis

P = $300,000 + 8A

A = $100,000 + 6B

B = $ 80,000 + 1P Computations:

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Exercise 10

Equations:

P = Income of Padua on a consolidated basis

A = Income of Able on a consolidated basis