Text Bank for Advanced accounting, 15th
Edition Joe Ben Hoyle, Thomas Schaefer and
Timothy Dou pin Latest version 2024/2025
Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue
to exist at a separate corporation. Entries for the consolidation of Lisa and Victoria
would be recorded in: - ANS✔✔--a worksheet
According to GAAP, the pooling of interest method for business combinations -
ANS✔✔--is no longer allowed for business combinations after June 30, 2001.
An example of a difference in types of business combination is - ANS✔✔--a statutory
merger requires dissolution of the acquired company while a statutory consolidation
does not require dissolution
An upstream sale of inventory is a sale - ANS✔✔--made by the investee to the
investor
On January 1, 2011, Dermot Company purchased 15% of the voting common stock of
Horne Corp. On January 1, 2013, Dermot purchased 28% of Horne's voting common
stock. If Dermot achieves significant influence with this new investment, how much
Dermot account for the change to the equity method? - ANS✔✔--It must restate the
financial statements for 2012 and 2011 as if the equity method had been used for those
two years.
On January 2, 2013, Austin Corp. purchased 25% of the voting common stock of
Gainsville Co., paying $2,500,000. Austin decided to use the equity method to account
for this investment. At the time of this investment, Gainsville's total stockholders' equity
was $8,000,000. Austin gathered the following information about Gainsville's assets and
liabilities.:
Book Value Fair Value
Buildings (10 yr life): $400,000 $500,000
Equipment (5 yr life): $1,000,000 $1,300,000
Franchises (8 yr life): $0 $400,000
For all other assets and liabilities, book value and fair value were equal. Any excess of
cost over fair value was attributed to goodwill, which has not been impaired. What is the
amount of goodwill associated with the investment? - ANS✔✔--$300,000.
Purchase price: $2,500,000
BV (8,000,000x25%) (2,000,000)
Excess of cost over BV 500,000
, Allocation:
Buildings: 100,000 x 25% = $25,000
Equip: 300,000 x 25% = $75,000
Franchise:400,000 x 25% = $100,000
Total: $200,000
500,000 - 200,000 = 300,000.
On January 1, 2013, Deuce Inc. acquired 15% of Wiz Co's outstanding common stock
for $62,400 and categorized the investment as an available-for-sale security. Wiz
earned net income of $96,000 in 2013 and paid dividends of $36,000. On January 1,
2014, Deuce bought an additional 10% of Wiz for $54,000. This second purchase gave
Deuce the ability to SIGNIFICANTLY INFLUENCE the decision making of Wiz. During
2014, Wiz earned $120,000 and paid $48,000 in dividends. As of December 31, 2014,
Wiz reported a net book value of $468,000. For both purchases, Deuce concluded that
Wiz Co's book values approximated fair values and attributed and excess cost to
goodwill.
What amount of EQUITY INCOME should Deuce have reported for 2014? - ANS✔✔-
-30,000.
120,000 x 25% = $30,000
25% because of original 15% investment and then additional 10% investment.
An investee company incurs an extraordinary loss during the period. The investor
appropriately applies the equity method, which of the following statements is true?
A.)Under the equity method, the investor only recognizes its share of investee's income
from continuing operations.
B.)The extraordinary loss would reduce the value or the investment.
C.) The extraordinary loss should increase equity in investee income.
D.) The extraordinary loss would not appear on the income statement but would be a
component of comprehensive income.
E.) The loss would be ignored but shown in the investor's notes to the financial
statements. - ANS✔✔--B.) The extraordinary loss would reduce the value of the
investment.
When applying the equity method, how is the excess of cost over book value accounted
for? - ANS✔✔--The excess is allocated to the difference between fair value and book
value multiplied by the percent ownership of net assets.
On January 4, 2013, Bailey Corp. purchased 40% of the voting common stock of Emery
Co., paying $3,00,000. Bailey property accounts for this investment using the equity
Edition Joe Ben Hoyle, Thomas Schaefer and
Timothy Dou pin Latest version 2024/2025
Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue
to exist at a separate corporation. Entries for the consolidation of Lisa and Victoria
would be recorded in: - ANS✔✔--a worksheet
According to GAAP, the pooling of interest method for business combinations -
ANS✔✔--is no longer allowed for business combinations after June 30, 2001.
An example of a difference in types of business combination is - ANS✔✔--a statutory
merger requires dissolution of the acquired company while a statutory consolidation
does not require dissolution
An upstream sale of inventory is a sale - ANS✔✔--made by the investee to the
investor
On January 1, 2011, Dermot Company purchased 15% of the voting common stock of
Horne Corp. On January 1, 2013, Dermot purchased 28% of Horne's voting common
stock. If Dermot achieves significant influence with this new investment, how much
Dermot account for the change to the equity method? - ANS✔✔--It must restate the
financial statements for 2012 and 2011 as if the equity method had been used for those
two years.
On January 2, 2013, Austin Corp. purchased 25% of the voting common stock of
Gainsville Co., paying $2,500,000. Austin decided to use the equity method to account
for this investment. At the time of this investment, Gainsville's total stockholders' equity
was $8,000,000. Austin gathered the following information about Gainsville's assets and
liabilities.:
Book Value Fair Value
Buildings (10 yr life): $400,000 $500,000
Equipment (5 yr life): $1,000,000 $1,300,000
Franchises (8 yr life): $0 $400,000
For all other assets and liabilities, book value and fair value were equal. Any excess of
cost over fair value was attributed to goodwill, which has not been impaired. What is the
amount of goodwill associated with the investment? - ANS✔✔--$300,000.
Purchase price: $2,500,000
BV (8,000,000x25%) (2,000,000)
Excess of cost over BV 500,000
, Allocation:
Buildings: 100,000 x 25% = $25,000
Equip: 300,000 x 25% = $75,000
Franchise:400,000 x 25% = $100,000
Total: $200,000
500,000 - 200,000 = 300,000.
On January 1, 2013, Deuce Inc. acquired 15% of Wiz Co's outstanding common stock
for $62,400 and categorized the investment as an available-for-sale security. Wiz
earned net income of $96,000 in 2013 and paid dividends of $36,000. On January 1,
2014, Deuce bought an additional 10% of Wiz for $54,000. This second purchase gave
Deuce the ability to SIGNIFICANTLY INFLUENCE the decision making of Wiz. During
2014, Wiz earned $120,000 and paid $48,000 in dividends. As of December 31, 2014,
Wiz reported a net book value of $468,000. For both purchases, Deuce concluded that
Wiz Co's book values approximated fair values and attributed and excess cost to
goodwill.
What amount of EQUITY INCOME should Deuce have reported for 2014? - ANS✔✔-
-30,000.
120,000 x 25% = $30,000
25% because of original 15% investment and then additional 10% investment.
An investee company incurs an extraordinary loss during the period. The investor
appropriately applies the equity method, which of the following statements is true?
A.)Under the equity method, the investor only recognizes its share of investee's income
from continuing operations.
B.)The extraordinary loss would reduce the value or the investment.
C.) The extraordinary loss should increase equity in investee income.
D.) The extraordinary loss would not appear on the income statement but would be a
component of comprehensive income.
E.) The loss would be ignored but shown in the investor's notes to the financial
statements. - ANS✔✔--B.) The extraordinary loss would reduce the value of the
investment.
When applying the equity method, how is the excess of cost over book value accounted
for? - ANS✔✔--The excess is allocated to the difference between fair value and book
value multiplied by the percent ownership of net assets.
On January 4, 2013, Bailey Corp. purchased 40% of the voting common stock of Emery
Co., paying $3,00,000. Bailey property accounts for this investment using the equity
