Chapter 03 The Reporting Entity and Consolidated Financial Statements proportionate share of the book value of Miller Company's net assets at the date of acquisition.. Beta Company acqui
Trang 1Chapter 03 The Reporting Entity and Consolidated Financial Statements
proportionate share of the book value of Miller Company's net assets at the date of
acquisition Selected balance sheet data at December 31, 2009, are as follows:
Trang 2Beta Company acquired 100 percent of the voting common shares of Standard Video Corporation, its bitter rival, by issuing bonds with a par value and fair value of $150,000 Immediately prior to the acquisition, Beta reported total assets of $500,000, liabilities of
$280,000, and stockholders' equity of $220,000 At that date, Standard Video reported total assets of $400,000, liabilities of $250,000, and stockholders' equity of $150,000 Included in Standard's liabilities was an account payable to Beta in the amount of $20,000, which Beta included in its accounts receivable
Trang 36 Based on the preceding information, what amount of stockholders' equity was reported in the consolidated balance sheet immediately after acquisition?
A Pea
B Pea plus Essone
C Pea plus Essone plus Esstwo
D Pea plus Essone plus Esstwo plus Essthree
8 Xing Corporation owns 80 percent of the voting common shares of Adams Corporation Noncontrolling interest was assigned $24,000 of income in the 2009 consolidated income statement What amount of net income did Adams Corporation report for the year?
A $550,000
B $590,000
C $700,000
D $860,000
Trang 410 Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31, 2009 On the date of acquisition, Princeton held land with a book value of
$150,000 and a fair value of $300,000; Sheffield held land with a book value of $100,000 and fair value of $500,000 Using the entity theory, at what amount would land be reported in a consolidated balance sheet prepared immediately after the combination?
Trang 5On January 3, 2009, Redding Company acquired 80 percent of Frazer Corporation's common stock for $344,000 in cash At the acquisition date, the book values and fair values of Frazer's assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to
20 percent of the total book value of Frazer The stockholders' equity accounts of the two companies at the acquisition date are:
Trang 615 Based on the preceding information, what will be the amount of net income reported by Frazer Corporation in 2009?
16 Goodwill under the parent theory:
A exceeds goodwill under the proprietary theory
B exceeds goodwill under the entity theory
C is less than goodwill under the entity theory
D is less than goodwill under the proprietary theory
Trang 719 Based on the preceding information, what is the amount of net income to be reported in the consolidated income statement for the year under the entity theory approach?
20 Quid Corporation acquired 75 percent of Pro Company's common stock on December 31,
2006 Goodwill (attributable to Quid's acquisition of Pro shares) of $300,000 was reported in the consolidated financial statements at December 31, 2006 Parent company approach was used in determining this amount What is the amount of goodwill to be reported under
proprietary theory approach?
21 Quid Corporation acquired 60 percent of Pro Company's common stock on December 31,
2004 Goodwill (attributable to Quid's acquisition of Pro shares) of $150,000 was reported in the consolidated financial statements at December 31, 2004 Proprietary theory approach was used in determining this amount What is the amount of goodwill to be reported under entity theory approach?
Trang 823 In which of the following cases would consolidation be inappropriate?
A The subsidiary is in bankruptcy
B Subsidiary's operations are dissimilar from those of the parent
C The parent owns 90 percent of the subsidiary's common stock, but all of the subsidiary's nonvoting preferred stock is held by a single investor
D Subsidiary is foreign
24 Consolidated financial statements tend to be most useful for:
A Creditors of a consolidated subsidiary
B Investors and long-term creditors of the parent company
C Short-term creditors of the parent company
D Stockholders of a consolidated subsidiary
On January 1, 2009, Heathcliff Corporation acquired 80 percent of Garfield Corporation's voting common stock Garfield's buildings and equipment had a book value of $300,000 and a fair value of $350,000 at the time of acquisition
Trang 927 On January 1, 2009, Gold Rush Company acquires 80 percent ownership in California Corporation for $200,000 The fair value of the noncontrolling interest at that time is
determined to be $50,000 It reports net assets with a book value of $200,000 and fair value of
$230,000 Gold Rush Company reports net assets with a book value of $600,000 and a fair value of $650,000 at that time, excluding its investment in California What will be the
amount of goodwill that would be reported immediately after the combination under current accounting practice?
A Sales would be overstated by $30,000
B Cost of goods sold will be understated by $25,000
C Net income will be overstated by $25,000
D Consolidated net income will be unaffected
29 Zeta Corporation and its subsidiary reported consolidated net income of $320,000 for the year ended December 31, 2008 Zeta owns 80 percent of the common shares of its subsidiary, acquired at book value Noncontrolling interest was assigned income of $30,000 in the
consolidated income statement for 2008 What is the amount of separate operating income reported by Zeta for the year?
Trang 1030 Rohan Corporation holds assets with a fair value of $150,000 and a book value of
$125,000 and liabilities with a book value and fair value of $50,000 What balance will be assigned to the noncontrolling interest in the consolidated balance sheet if Helms Company pays $90,000 to acquire 75 percent ownership in Rohan and goodwill of $20,000 is reported?
Trang 1133 Based on the preceding information, what amount would be reported in the consolidated financial statements for cost of goods sold for 2008?
35 When a primary beneficiary's consolidation of a variable interest entity (VIE) is
appropriate, the amounts of the VIE to be consolidated are:
I Book values for assets and liabilities transferred by the primary beneficiary
II Fair values when the primary beneficiary relationship became established
36 Which of the following usually does not represent a variable interest?
A Common stock, with no special features or provisions
Trang 1237 Consolidated financial statements are required by GAAP in certain circumstances This information can be very useful to stockholders and creditors Yet, there are limitations to these financial statements for which the users must be aware What are at least three (3) limitations of consolidated financial statements?
a What is a non-controlling interest?
b Why must it be reported in the financial statements as an element of equity rather than a liability?
Trang 1340 Dish Corporation acquired 100 percent of the common stock of Toll Company by issuing 10,000 shares of $10 par common stock with a market value of $60 per share Summarized balance sheet data for the two companies immediately preceding the acquisition are as follows:
Trang 1441 The Hamilton Company acquired 100 percent of the stock of Hudson Company on January 1, 2010, for $308,000 cash Summarized balance sheet data for the companies on December 31, 2009, are as follows:
Trang 1542 Barnes Company acquired 80 percent of the outstanding voting stock of Dean Company
on January 1, 2008 During 2008 Dean Company sold inventory costing $50,000 to Barnes Company for $80,000 Barnes Company continued to hold the inventory at December 31,
2008 Also during 2008, Barnes Company sold merchandise costing $400,000 to nonaffiliates for $600,000, and on its separate balance sheet reported total inventory at year end of
$140,000 In its separate financial statements, Dean Company reported total sales and cost of goods sold of $350,000 and $220,000, respectively, for 2008 and ending inventory of
$150,000
Required: Based on the above information, compute the amounts that should appear in the consolidated financial statements prepared for Barnes Company and it subsidiary, Dean Company, at year end for the following items: 1) sales; 2) cost of goods sold; 3) gross profit
Trang 1643 On January 1, 2009, Field Corporation, a retail outlet chain, acquired 100 percent of the common stock of Palouse Company by issuing 14,000 shares of Field's $5 par value common stock The market price of Field's common stock was $20 per share on the eve of December
31, 2008 Summarized balance sheet data at December 31, 2008, are as follows:
Additional Information:
The book values of Palouse's assets approximated their respective fair values, except for inventory (included in current assets), which had a fair value $20,000 more than book value, and land, which had a market value of $200,000 on the date of combination At that date, Field owed Palouse $34,000 on account
Required: Prepare a consolidated balance sheet immediately following the acquisition
Trang 17
Chapter 03 The Reporting Entity and Consolidated Financial Statements Answer Key
proportionate share of the book value of Miller Company's net assets at the date of
acquisition Selected balance sheet data at December 31, 2009, are as follows:
Trang 182 Based on the preceding information, what amount will Jane Company report as common stock outstanding in its consolidated balance sheet at December 31, 2009?
$280,000, and stockholders' equity of $220,000 At that date, Standard Video reported total assets of $400,000, liabilities of $250,000, and stockholders' equity of $150,000 Included in Standard's liabilities was an account payable to Beta in the amount of $20,000, which Beta included in its accounts receivable
Trang 195 Based on the preceding information, what amount of total liabilities was reported in the consolidated balance sheet immediately after acquisition?
A Pea
B Pea plus Essone
C Pea plus Essone plus Esstwo
D Pea plus Essone plus Esstwo plus Essthree
AACSB: Analytic
AICPA: Decision Making
Trang 208 Xing Corporation owns 80 percent of the voting common shares of Adams Corporation Noncontrolling interest was assigned $24,000 of income in the 2009 consolidated income statement What amount of net income did Adams Corporation report for the year?
A $650,000
B $500,000
C $550,000
D $375,000
Trang 2111 If Push Company owned 51 percent of the outstanding common stock of Shove Company, which reporting method would be appropriate?
20 percent of the total book value of Frazer The stockholders' equity accounts of the two companies at the acquisition date are:
Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income
Trang 2213 Based on the preceding information, what amount will be assigned to the noncontrolling interest on January 3, 2009, in the consolidated balance sheet?
Trang 2316 Goodwill under the parent theory:
A exceeds goodwill under the proprietary theory
B exceeds goodwill under the entity theory
C is less than goodwill under the entity theory
D is less than goodwill under the proprietary theory
Trang 2419 Based on the preceding information, what is the amount of net income to be reported in the consolidated income statement for the year under the entity theory approach?
20 Quid Corporation acquired 75 percent of Pro Company's common stock on December 31,
2006 Goodwill (attributable to Quid's acquisition of Pro shares) of $300,000 was reported in the consolidated financial statements at December 31, 2006 Parent company approach was used in determining this amount What is the amount of goodwill to be reported under
proprietary theory approach?
21 Quid Corporation acquired 60 percent of Pro Company's common stock on December 31,
2004 Goodwill (attributable to Quid's acquisition of Pro shares) of $150,000 was reported in the consolidated financial statements at December 31, 2004 Proprietary theory approach was used in determining this amount What is the amount of goodwill to be reported under entity theory approach?
A $150,000
B $200,000
C $250,000
D $100,000
Trang 2522 Blue Company owns 80 percent of the common stock of White Corporation During the year, Blue reported sales of $1,000,000, and White reported sales of $500,000, including sales
to Blue of $80,000 The amount of sales that should be reported in the consolidated income statement for the year is:
23 In which of the following cases would consolidation be inappropriate?
A The subsidiary is in bankruptcy
B Subsidiary's operations are dissimilar from those of the parent
C The parent owns 90 percent of the subsidiary's common stock, but all of the subsidiary's nonvoting preferred stock is held by a single investor
D Subsidiary is foreign
AACSB: Reflective Thinking
AICPA: Reporting
24 Consolidated financial statements tend to be most useful for:
A Creditors of a consolidated subsidiary
B Investors and long-term creditors of the parent company
C Short-term creditors of the parent company
D Stockholders of a consolidated subsidiary
Trang 2625 Based on the preceding information, what will be the amount at which Garfield's buildings and equipment will be reported in consolidated statements using the parent company
determined to be $50,000 It reports net assets with a book value of $200,000 and fair value of
$230,000 Gold Rush Company reports net assets with a book value of $600,000 and a fair value of $650,000 at that time, excluding its investment in California What will be the
amount of goodwill that would be reported immediately after the combination under current accounting practice?
A $50,000
B $30,000
C $40,000
D $20,000
Trang 2728 Roland Company acquired 100 percent of Garros Company's voting shares in 2007 During 2008, Garros purchased tennis equipment for $30,000 and sold them to Roland for
$55,000 Roland continues to hold the items in inventory on December 31, 2008 Sales for the two companies during 2008 totaled $655,000, and total cost of goods sold was $420,000 Which of the following observations will be true if no adjustment is made to eliminate the intercorporate sale when a consolidated income statement is prepared for 2008?
A Sales would be overstated by $30,000
B Cost of goods sold will be understated by $25,000
C Net income will be overstated by $25,000
D Consolidated net income will be unaffected
consolidated income statement for 2008 What is the amount of separate operating income reported by Zeta for the year?
30 Rohan Corporation holds assets with a fair value of $150,000 and a book value of
$125,000 and liabilities with a book value and fair value of $50,000 What balance will be assigned to the noncontrolling interest in the consolidated balance sheet if Helms Company pays $90,000 to acquire 75 percent ownership in Rohan and goodwill of $20,000 is reported?
Trang 28Elbonia Corporation, a 100 percent subsidiary of Atomic Corporation, caters to its parent's entire inventory requirements In 2007, Elbonia produced inventory at a cost of $36,000 and sold it to Atomic for $75,000 Atomic held all the items in inventory on January 1, 2008 During 2008, Atomic sold all the units for $98,000 Assume that the companies had no other transactions during 2007 and 2008