Test Bank For Advanced Accounting 13Th Edition by Joe Ben Hoyle

File: Chapter 04 - Consolidated Financial Statements and Outside Ownership Multiple Choice: [QUESTION] 1. For business combinations involving less than 100 percent ownership, the acquirer recognizes and measures all of the following at the acquisition date except: A) Identifiable assets acquired, at fair value. B) Liabilities assumed, at book value. C) Non-controlling interest, at fair value. D) Goodwill, or a gain from bargain purchase. E) None of these choices is correct. Answer: B Learning Objective: 04-02 Topic: Acquisition-date―Consolidated balance sheet Difficulty: 2 Medium Blooms: Remember AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement REFERENCE: 04-01 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. [QUESTION] REFER TO: 04-01 2. What amount should have been reported for the land in a consolidated balance sheet at the acquisition date? A) $ 52,500. B) $ 70,000. C) $ 75,000. D) $ 92,500. E) $100,000. Answer: E Learning Objective: 04-02 Topic: Acquisition-date―Consolidated balance sheet Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: $100,000 FV of Land at Acquisition [QUESTION] REFER TO: 04-01 3. What is the total amount of excess land allocation at the acquisition date? A) $ 0. B) $30,000. C) $22,500. D) $25,000. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-1 E) $17,500. Answer: B Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV $100,000 – BV $70,000 = $30,000 [QUESTION] REFER TO: 04-01 4. What is the amount of excess land allocation attributed to the controlling interest at the acquisition date? A) $ 0. B) $30,000. C) $22,500. D) $25,000. E) $17,500. Answer: C Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV – BV ($30,000) × .75 = $22,500 [QUESTION] REFER TO: 04-01 5. What is the amount of excess land allocation attributed to the noncontrolling interest at the acquisition date? A) $ 0. B) $30,000. C) $22,500. D) $ 7,500. E) $17,500. Answer: D Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV – BV ($30,000) × .25 = $7,500 [QUESTION] 6. Which of the following methods is not used to value a noncontrolling interest under circumstances Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-2 where a control premium is applied to determine the appropriate value for such interest? A) Valuation models based on subsidiary discounted cash flows. B) Valuation models based on subsidiary residual income projections. C) Comparison with comparable investments. D) The application of a safe harbor discount rate. E) Fair value based on market trades. Answer: D Learning Objective: 04-02 Learning Objective: 04-07 Topic: Acquisition-date―Fair value of subsidiary Topic: Goodwill―With control premium Difficulty: 2 Medium Blooms: Understand AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement REFERENCE: 04-02 Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000. The fair value of Float's net assets was $1,850,000, and the book value was $1,500,000. The noncontrolling interest shares of Float Corp. are not actively traded. [QUESTION] REFER TO: 04-02 7. What is the total amount of goodwill recognized at the date of acquisition? A) $150,000. B) $250,000. C) $ 0. D) $120,000. E) $170,000. Answer: A Learning Objective: 04-03 Topic: Goodwill―No control premium Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV $1,850,000 – FV of 100% of Float’s Stock based on Purchase Price ($1,600,000 / .80) $2,000,000 = ($150,000) Goodwill [QUESTION] REFER TO: 04-02 8. What amount of goodwill should be attributed to Perch at the date of acquisition? A) $150,000. B) $250,000. C) $ 0. D) $120,000. E) $170,000. Answer: D Learning Objective: 04-03 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-3 Topic: Goodwill―No control premium Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: (Purchase Price for 80%) $1,600,000 – (FV $1,850,000 × .80 = $1,480,000) = $120,000 [QUESTION] REFER TO: 04-02 9. What amount of goodwill should be attributed to the noncontrolling interest at the date of acquisition? A) $ 0. B) $ 20,000. C) $ 30,000. D) $100,000. E) $120,000. Answer: C Learning Objective: 04-03 Topic: Goodwill―No control premium Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: $150,000 Goodwill × .20 = $30,000 to Noncontrolling Interest [QUESTION] REFER TO: 04-02 10. What is the dollar amount of noncontrolling interest that should appear in a consolidated balance sheet prepared at the date of acquisition? A) $350,000. B) $300,000. C) $400,000. D) $370,000. E) $0. Answer: C Learning Objective: 04-02 Learning Objective: 04-05 Learning Objective: 04-06 Topic: Acquisition-date―Consolidated balance sheet Topic: Acquisition-date―Fair value of subsidiary Topic: Noncontrolling interest―Calculate balance Topic: Noncontrolling interest―Statement presentation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV of Stock at Acquisition Date for 100% ($1,600,000 / .80) $2,000,000 × .20 = $400,000 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-4 [QUESTION] REFER TO: 04-02 11. What is the dollar amount of Float Corp.’s net assets that would be represented in a consolidated balance sheet prepared at the date of acquisition? A) $1,600,000. B) $1,480,000. C) $1,200,000. D) $1,780,000. E) $1,850,000. Answer: E Learning Objective: 04-02 Learning Objective: 04-05 Topic: Acquisition-date―Consolidated balance sheet Topic: Acquisition-date―Fair value allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV of Assets Acquired = $1,850,000 [QUESTION] REFER TO: 04-02 12. What is the dollar amount of fair value over book value differences attributed to Perch at the date of acquisition? A) $120,000. B) $150,000. C) $280,000. D) $350,000. E) $370,000. Answer: C Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV $1,850,000 – BV $1,500,000 = $350,000 × .80 = $280,000 REFERENCE: 04-03 Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 2019. During 2019, Harbor had revenues of $2,500,000 and expenses of $2,000,000. The amortization of fair value allocations totaled $60,000 in 2019. Not including its investment in Harbor, Femur Co. had its own revenues of $4,500,000 and expenses of $3,000,000 for the year 2019. [QUESTION] REFER TO: 04-03 13. The noncontrolling interest's share of the earnings of Harbor Corp. for 2019 is calculated to be A) $132,000. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-5 B) $150,000. C) $168,000. D) $160,000. E) $0. Answer: A Learning Objective: 04-04 Topic: Consolidated net income―Allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Revenue $2,500,000 – Expenses $2,000,000 = $500,000 – $60,000 = $440,000 × .30 = $132,000 [QUESTION] REFER TO: 04-03 14. What amount would Femur Co. report as consolidated net income for 2019? A) $440,000. B) $500,000. C) $1,500,000. D) $1,940,000. E) $2,000,000. Answer: D Learning Objective: 04-04 Topic: Consolidated net income Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Femur Net Income (Femur Revenue $4,500,000 less Femur Expenses $3,000,000 = $1,500,000) + Harbor Net Income (Harbor Revenue $2,500,000 – Harbor Expenses $2,000,000 – Amortizations for Excess Fair Value over Book Value = $500,000 – $60,000 = $440,000) = $1,500,000 + $440,000 = $1,940,000 [QUESTION] REFER TO: 04-03 15. What amount of consolidated net income for 2019 should be allocated to Femur’s controlling interest in Harbor? A) $ 582,000 B) $1,050,000 C) $1,358,000 D) $1,808,000 E) $2,140,000 Answer: D Learning Objective: 04-04 Topic: Consolidated net income―Allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-6 AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Total Consolidated Net Income ($1,940,000 – 132,000 to NCI) = $1,808,000 REFERENCE: 04-04 Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2019. For 2019, Kailey reported revenues of $810,000 and expenses of $630,000, not including its investment in Denber, and all reflected evenly throughout the year. The annual amount of amortization related to this acquisition was $15,000. [QUESTION] REFER TO: 04-04 16. In consolidation, the total amount of expenses related to Kailey, and to Denber’s acquisition of Kailey, for 2019 is determined to be A) $153,750. B) $161,250. C) $205,000. D) $210,000. E) $215,000. Answer: E Learning Objective: 04-08 Topic: Midyear acquisition Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Expenses $630,000 × 4/12 = $210,000; Amortization $15,000 × 4/12 = $5,000 = $215,000 [QUESTION] REFER TO: 04-04 17. What is the effect of including Kailey in consolidated net income for 2019? A) $31,000. B) $33,000. C) $55,000. D) $60,000. E) $39,000. Answer: C Learning Objective: 04-08 Topic: Midyear acquisition Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Revenue $810,000 – Expenses $630,000 = Income $180,000 × 4/12 = $60,000 – Annual Amortization ($15,000 × 4/12) = $55,000 [QUESTION] REFER TO: 04-04 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-7 18. What is the amount of Kailey’s net income to the controlling interest for 2019? A) $31,000. B) $33,000. C) $55,000. D) $60,000. E) $39,000. Answer: B Learning Objective: 04-08 Topic: Midyear acquisition Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Revenue $810,000 – Expenses $630,000 = Income $180,000 × 4/12 = $60,000 – Annual Amortization ($15,000 × 4/12) = $55,000 × .60 = $33,000 [QUESTION] REFER TO: 04-04 19. What is the amount of the noncontrolling interest's share of Kailey’s income for 2019? A) $22,000. B) $24,000. C) $48,000. D) $66,000. E) $72,000. Answer: A Learning Objective: 04-08 Topic: Midyear acquisition Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Total Income for September-December = $55,000 – Controlling Interest Portion $33,000 = $22,000. Revenue $810,000 – Expenses $630,000 = Income $180,000 × 4/12 = $60,000 – Annual Amortization ($15,000 × 4/12) = $55,000 × .40 = $22,000 [QUESTION] 20. MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in an acquisition that resulted in the recognition of goodwill. Nomes owned a piece of land that cost $250,000 but was worth $600,000 at the date of acquisition. What value would be attributed to this land in a consolidated balance sheet at the date of acquisition? A) $250,000. B) $150,000. C) $600,000. D) $360,000. E) $460,000. Answer: C Learning Objective: 04-02 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-8 Topic: Acquisition-date―Consolidated balance sheet Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV of the Land $600,000 [QUESTION] 21. Kordel Inc. acquired 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, what amount of Raxston’s liability should be eliminated? A) $375,000 B) $125,000 C) $300,000 D) $500,000 E) $0. Answer: D Learning Objective: 04-05 Topic: Worksheet procedures Difficulty: 1 Easy Blooms: Understand AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: BV & FV of the Existing Receivable $500,000 REFERENCE: 04-05 Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2019 when Park's book value was $560,000. The Royce stock was not actively traded. On the date of acquisition, Park had equipment (with a ten-year life) that was undervalued in the financial records by $140,000. One year later, the two companies provided the selected amounts shown below. Additionally, no dividends have been paid. Royce Co. Book Park Co. [QUESTION] Current assets $ Equipment Buildings Liabilities Revenues Expenses Investment income REFER TO: 04-05 Value 868,000 364,000 574,000 546,000) $ Book Value 420,000 280,000 210,000 ( 168,000) ( 560,000) 420,000 $ Fair Value 448,000 400,000 210,000 ( 168,000) ( ( 1,260,000) 700,000 Not Given 22. What amount of consolidated net income for 2020 is attributable to Royce’s controlling interest? A) $686,000. B) $560,000. C) $644,000. D) $635,600. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-9 E) $691,600. Answer: D Learning Objective: 04-04 Topic: Consolidated net income―Allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: [Parent’s Income ($1,260,000 - $700,000 = $560,000)] + [Sub’s Income ($560,000 - $420,000) × .60 = $84,000] – [Excess Equipment Amortization for 2020 ($140,000 / 10) × .60 = $8,400] = $635,600 [QUESTION] REFER TO: 04-05 23. What is the noncontrolling interest's share of the subsidiary's net income for the year ended December 31, 2020 and what is the ending balance of the noncontrolling interest in the subsidiary at December 31, 2020? A) $56,000 and $280,000. B) $50,400 and $218,400. C) $56,000 and $224,000. D) $56,000 and $336,000. E) $50,400 and $330,400. Answer: E Learning Objective: 04-04 Learning Objective: 04-05 Topic: Consolidated net income―Allocation Topic: Noncontrolling interest―Calculate balance Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: [Sub’s Income ($560,000 - $420,000) × .40 = $56,000] - [Excess Equipment Amortization for 2020 ($140,000 / 10) × .40 = $5,600] = $50,400 [Noncontrolling Interest at Acquisition (FV $700,000 × .40) = $280,000] + [Noncontrolling Interest 2020 Income $56,000] – [Excess Equipment Amortization ($140,000 / 10) × .40] = $330,400 [QUESTION] REFER TO: 04-05 24. What is the consolidated balance of the Equipment account at December 31, 2020? A) $644,400. B) $784,000. C) $719,600. D) $770,000. E) $775,600. Answer: D Learning Objective: 04-05 Topic: Consolidated totals―Individual items Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-10 Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: [Parent’s Equipment $364,000] + [Sub’s Equipment $280,000] + [Fair value allocation less one year of Amortization $140,000 - $14,000] = $770,000 REFERENCE: 04-06 On January 1, 2019, Palk Corp. and Spraz Corp. had condensed balance sheets as follows: Palk Corp. Spraz Corp. Current assets $ 99,000 $ 28,000 Noncurrent assets $ 125,000 $ 56,000 Total assets $ 224,000 $ 84,000 Current liabilities $ 42,000 $ 14,000 Long-term debt $ 70,000 $- Stockholders' equity $ 112,000 $ 70,000 Total liabilities and stockholders' equity $ 224,000 $ 84,000 On January 2, 2019, Palk borrowed the entire $84,000 it needed to acquire 80% of the outstanding common shares of Spraz. Shares of Spraz are not actively traded on the market. The loan was to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2019. The excess consideration transferred over the underlying book value of the acquired net assets was allocated 60% to inventory and 40% to goodwill. [QUESTION] REFER TO: 04-06 25. What amount represents consolidated current assets at January 2, 2019? A) $127,000. B) $129,800. C) $143,800. D) $148,000. E) $135,400. Answer: D Learning Objective: 04-02 Learning Objective: 04-05 Topic: Acquisition-date―Consolidated balance sheet Topic: Acquisition-date―Fair value allocation Topic: Consolidated totals―Individual items Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: [Parent’s Current Assets $99,000] + [Sub’s Current Assets $28,000] + [Excess Consideration to Inventory ($105,000 - $70,000 = $35,000 × .60) $21,000] Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-11 = $148,000 [QUESTION] REFER TO: 04-06 26. What is the amount attributable to consolidated noncurrent assets at January 2, 2019? A) $195,000. B) $192,200. C) $186,600. D) $181,000. E) $169,800. Answer: A Learning Objective: 04-02 Learning Objective: 04-03 Learning Objective: 04-05 Topic: Acquisition-date―Consolidated balance sheet Topic: Goodwill―No control premium Topic: Consolidated totals―Individual items Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: [Parent’s Non-Current Assets $125,000] + [Sub’s Non-Current Assets $56,000] + [Excess Consideration to Goodwill ($105,000 - $70,000 = $35,000 × .40) $14,000] = $195,000 [QUESTION] REFER TO: 04-06 27. What are the total consolidated current liabilities at January 2, 2019? A) $53,200. B) $56,000. C) $64,400. D) $42,000. E) $70,000. Answer: C Learning Objective: 04-02 Learning Objective: 04-05 Topic: Acquisition-date―Consolidated balance sheet Topic: Consolidated totals―Individual items Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: [Parent’s Current Liabilities $42,000] + [Sub’s Current Liabilities $14,000] + [Current Portion of Acquisition Loan ($84,000 / 10) = $8,400] = $64,400 [QUESTION] REFER TO: 04-06 28. What is consolidated stockholders’ equity at January 2, 2019? Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-12 A) $112,000. B) $133,000. C) $168,000. D) $182,000. E) $203,000. Answer: B Learning Objective: 04-02 Learning Objective: 04-05 Learning Objective: 04-06 Topic: Acquisition-date―Consolidated balance sheet Topic: Consolidated totals―Individual items Topic: Noncontrolling interest―Statement presentation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Parent’s Equity $112,000 + Noncontrolling Interest $21,000 = $133,000 [QUESTION] 29. In measuring the noncontrolling interest immediately following the date of acquisition, which of the following would not be indicative of the value attributed to the noncontrolling interest? A) Fair value based on stock trades of the acquired company. B) Subsidiary cash flows discounted to present value. C) Book value of subsidiary net assets. D) Projections of residual income. E) Consideration transferred by the parent company that implies a total subsidiary value. Answer: C Learning Objective: 04-02 Topic: Acquisition-date―Fair value of subsidiary Difficulty: 2 Medium Blooms: Remember AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement [QUESTION] 30. When a parent uses the equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is false at the date immediately preceding the date on which adjustments are made on the consolidated worksheet? A) Parent company net income equals controlling interest in consolidated net income. B) Parent company retained earnings equals consolidated retained earnings. C) Parent company total assets equals consolidated total assets. D) Parent company dividends equals consolidated dividends. E) Goodwill is not recorded on the parent’s books. Answer: C Learning Objective: 04-04 Learning Objective: 04-05 Topic: Consolidated net income―Allocation Topic: Investment account balance―Equity method Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-13 Topic: Worksheet procedures Difficulty: 2 Medium Blooms: Analyze AACSB: Analytical Thinking AICPA BB: Critical Thinking AICPA FN: Measurement [QUESTION] 31. When a parent uses the initial value method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet? A) Parent company net income equals consolidated net income. B) Parent company retained earnings equals consolidated retained earnings. C) Parent company total assets equals consolidated total assets. D) Parent company dividends equal consolidated dividends. E) Goodwill is recorded on the parent’s books. Answer: D Learning Objective: 04-05 Topic: Initial value or Partial equity accounting Topic: Worksheet procedures Difficulty: 2 Medium Blooms: Understand AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement [QUESTION] 32. When a parent uses the partial equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet? A) Parent company net income equals consolidated net income. B) Parent company retained earnings equals consolidated retained earnings. C) Parent company total assets equals consolidated total assets. D) Parent company dividends equal consolidated dividends. E) Goodwill is recorded on the parent’s books. Answer: D Learning Objective: 04-05 Topic: Initial value or Partial equity accounting Topic: Worksheet procedures Difficulty: 2 Medium Blooms: Understand AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement [QUESTION] 33. In a step acquisition, which of the following statements is 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. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-14 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 measurement event. E) Pre-acquisition earnings are not included in the consolidated income statement. Answer: C Learning Objective: 04-09 Topic: Step acquisition―Additional shares post-control Topic: Step acquisition―Resulting in control Difficulty: 2 Medium Blooms: Remember AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement [QUESTION] 34. Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common stock? A) The parent recognizes a larger percent of subsidiary income. B) A step acquisition resulting in control may result in a parent recognizing a gain on revaluation. C) The book value of the subsidiary will increase. D) The parent's percent ownership in subsidiary will increase. E) Noncontrolling interest in subsidiary's net income will decrease. Answer: C Learning Objective: 04-09 Topic: Step acquisition―Resulting in control Topic: Step acquisition―Additional shares post-control Difficulty: 2 Medium Blooms: Understand AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement [QUESTION] 35. When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true? A) Income from subsidiary is not recognized until there is an entire year of consolidated operations. B) Income from subsidiary is recognized from date of acquisition to year-end. C) Excess cost over acquisition value is recognized at the beginning of the fiscal year. D) No goodwill can be recognized. E) Income from subsidiary is recognized for the entire year. Answer: B Learning Objective: 04-08 Topic: Midyear acquisition Difficulty: 1 Easy Blooms: Remember AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement [QUESTION] 36. When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, which of the following statements is true of the subsidiary with respect to the presentation of consolidated Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-15 financial statement information? A) Pre-acquisition earnings are deducted from consolidated revenues and expenses. B) Pre-acquisition earnings are added to consolidated revenues and expenses. C) Pre-acquisition earnings are deducted from the beginning consolidated stockholders' equity. D) Pre-acquisition earnings are added to the beginning consolidated stockholders' equity. E) Pre-acquisition earnings are ignored in the consolidated income statement. Answer: E Learning Objective: 04-08 Topic: Midyear acquisition Difficulty: 2 Medium Blooms: Remember AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement [QUESTION] 37. 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 required. B) If majority control is not maintained but significant influence exists, the equity method to account for the investment is still used but consolidated financial statements are not required. C) If majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are still required. D) If majority control is not maintained and significant influence no longer exists, a prospective change in accounting principle to the fair value method is required. E) A gain or loss calculation must be prepared if control is lost. Answer: C Learning Objective: 04-10 Topic: Sale of shares―Control maintained Topic: Sale of shares―Control lost Difficulty: 2 Medium Blooms: Remember AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement [QUESTION] 38. All of the following statements regarding the sale of subsidiary shares are true except which of the following? A) The use of specific identification based on serial number is acceptable. B) The use of the FIFO assumption is acceptable. C) The use of the averaging assumption is acceptable. D) The use of specific LIFO assumption is acceptable. E) The parent company must determine whether consolidation is still appropriate for the remaining shares owned. Answer: D Learning Objective: 04-10 Topic: Sale of shares―Control maintained Topic: Sale of shares―Control lost Difficulty: 2 Medium Blooms: Remember Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-16 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement [QUESTION] 39. Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition method for accounting for business combinations? A) If control continues, the difference between selling price and acquisition value is recorded as a realized gain or loss. B) 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 to additional paid-in capital. D) If control continues, the difference between selling price and carrying value is recorded as a realized gain or loss. E) If control continues, the difference between selling price and carrying value is recorded as an adjustment to retained earnings. Answer: C Learning Objective: 04-10 Topic: Sale of shares―Control maintained Difficulty: 2 Medium Blooms: Remember AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement [QUESTION] 40. Jax Company used the acquisition method when it acquired its investment in Saxton Company. Jax now sells some of its shares of Saxton such that neither control nor significant influence exists. Which of the following statements is true? A) The difference between selling price and acquisition value is recorded as a realized gain or loss. B) The difference between selling price and acquisition value is recorded as an unrealized gain or loss. C) The difference between selling price and carrying value is recorded as a realized gain or loss. D) The difference between selling price and carrying value is recorded as an unrealized gain or loss. E) The difference between selling price and carrying value is recorded as an adjustment to retained earnings. Answer: C Learning Objective: 04-10 Topic: Sale of shares―Control lost Difficulty: 2 Medium Blooms: Understand AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement [QUESTION] 41. Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on September 1, 2019, and an additional 10% on January 1, 2020. Total annual amortization of $6,000 relates to the first acquisition. George reports the following figures for 2020: Revenues $500,000 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-17 Expenses Retained earnings, 1/1/20 Dividends paid Common stock 400,000 300,000 50,000 200,000 Without regard for this investment, Keefe independently earns $300,000 in net income during 2020. All net income is earned evenly throughout the year. What is the controlling interest in consolidated net income for 2020? A) $380,000. B) $375,200. C) $375,800. D) $376,000. E) $400,000. Answer: B Learning Objective: 04-09 Topic: Step acquisition―Additional shares post-control Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Keefe owns 80% of George for the entire year of 2020. Keefe’s share of consolidated net income: 100,000 sub income – 6,000 amortization = 94,000 × .80= 75,200 from Sub + 300,000 internally generated REFERENCE: 04-07 McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan’s total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: Buildings (10 - year life) Equipment (4-year life) Land Book Value $10,000 14,000 5,000 Fair Value $ 8,000 18,000 12,000 Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. [QUESTION] REFER TO: 04-07 42. The acquisition value attributable to the noncontrolling interest at January 1, 2019 is: A) $23,400. B) $24,000. C) $24,900. D) $26,000. E) $20,000. Answer: D Learning Objective: 04-02 Topic: Acquisition-date―Fair value of subsidiary Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-18 Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: $234,000 / .90 = $260,000 × .10 = $26,000 [QUESTION] REFER TO: 04-07 43. In consolidation at January 1, 2019, what adjustment is necessary for Hogan's Buildings account? A) $2,000 increase. B) $2,000 decrease. C) $1,800 increase. D) $1,800 decrease. E) No change. Answer: B Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Topic: Worksheet procedures Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV $8,000 – BV $10,000 = <$2,000> Reduction [QUESTION] REFER TO: 04-07 44. In consolidation at December 31, 2019, what adjustment is necessary for Hogan's Buildings account? A) $1,620 increase. B) $1,620 decrease. C) $1,800 increase. D) $1,800 decrease. E) No adjustment is necessary. Answer: D Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Topic: Amortization of fair value allocations Topic: Worksheet procedures Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: <$2,000> Reduction – 2019 Excess Amortization of <$200> = <$1,800> Reduction [QUESTION] REFER TO: 04-07 45. In consolidation at December 31, 2020, what adjustment is necessary for Hogan's Buildings account? A) $1,440 increase. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-19 B) $1,440 decrease. C) $1,600 increase. D) $1,600 decrease. E) No adjustment is necessary. Answer: D Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Topic: Amortization of fair value allocations Topic: Worksheet procedures Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: <$1,800> 2019 BV – 2020 Excess Amortization of <$200> = <$1,600> Reduction [QUESTION] REFER TO: 04-07 46. In consolidation at January 1, 2019, what adjustment is necessary for Hogan's Equipment account? A) $4,000 increase. B) $4,000 decrease. C) $3,600 increase. D) $3,600 decrease. E) No adjustment is necessary. Answer: A Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Topic: Worksheet procedures Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: FV $18,000 – BV $14,000 = Increase $4,000 [QUESTION] REFER TO: 04-07 47. In consolidation at December 31, 2019, what adjustment is necessary for Hogan's Equipment account? A) $3,000 increase. B) $3,000 decrease. C) $2,700 increase. D) $2,700 decrease. E) No adjustment is necessary. Answer: A Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Topic: Amortization of fair value allocations Topic: Worksheet procedures Difficulty: 2 Medium Blooms: Apply Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-20 AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Fair Value Differential $4,000 – Amortization for 2019 $1,000 = $3,000 Increase [QUESTION] REFER TO: 04-07 48. In consolidation at December 31, 2020, what adjustment is necessary for Hogan's Equipment account? A) $2,000 increase. B) $2,000 decrease. C) $1,800 increase. D) $1,800 decrease. E) No adjustment is necessary. Answer: A Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Topic: Amortization of fair value allocations Topic: Worksheet procedures Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Fair Value Differential $4,000 – Amortization for 2019 & 2020 $2,000 = $2,000 Increase [QUESTION] REFER TO: 04-07 49. In consolidation at January 1, 2019, what adjustment is necessary for Hogan's Land account? A) $7,000 increase. B) $7,000 decrease. C) $6,300 increase. D) $6,300 decrease. E) No adjustment is necessary. Answer: A Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Topic: Worksheet procedures Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Fair Value Differential at Acquisition $7,000 – No Amortization = $7,000 Increase [QUESTION] REFER TO: 04-07 50. In consolidation at December 31, 2019, what adjustment is necessary for Hogan's Land account? Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-21 A) $8,000 decrease . B) $7,000 increase. C) $6,300 increase. D) $6,300 decrease. E) No adjustment is necessary. Answer: B Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Topic: Worksheet procedures Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Fair Value Differential at Acquisition $7,000 – No Amortization = $7,000 Increase [QUESTION] REFER TO: 04-07 51. In consolidation at December 31, 2020, what adjustment is necessary for Hogan's Land account? A) $7,000 decrease. B) $7,000 increase. C) $6,300 increase. D) $6,300 decrease. E) No adjustment is necessary. Answer: B Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Topic: Worksheet procedures Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Fair Value Differential at Acquisition $7,000 – No Amortization = $7,000 Increase [QUESTION] REFER TO: 04-07 52. In consolidation at January 1, 2019, what adjustment is necessary for Hogan's Patent account? A) $7,000. B) $6,300. C) $11,000. D) $9,900. E) No adjustment is necessary. Answer: C Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Topic: Worksheet procedures Difficulty: 1 Easy Blooms: Apply Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-22 AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: BV Equity $240,000 – Fair Value Equity at Acquisition $260,000 = $20,000 – Identified Net FV Increase $9,000 (Blgs + Equipt + Land) = $11,000 Excess Attributed to Patent [QUESTION] REFER TO: 04-07 53. In consolidation at December 31, 2019, what net adjustment is necessary for Hogan's Patent account? A) $5,600. B) $8,800. C) $7,000. D) $7,700. E) No adjustment is necessary. Answer: B Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Topic: Amortization of fair value allocations Topic: Worksheet procedures Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Attributed Fair Value Patent $11,000 – Amortization for 2019 $2,200 = $8,800 [QUESTION] REFER TO: 04-07 54. In consolidation at December 31, 2020, what net adjustment is necessary for Hogan's Patent account? A) $4,200. B) $5,500. C) $8,000. D) $6,600. E) No adjustment is necessary. Answer: D Learning Objective: 04-05 Topic: Acquisition-date―Fair value allocation Topic: Amortization of fair value allocations Topic: Worksheet procedures Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Attributed Fair Value Patent $11,000 – Amortization for 2019 & 2020 $4,400 = $6,600 REFERENCE: 04-08 Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-23 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: 2019 Net income $100,000 Dividends 40,000 Assume the equity method is applied. 2020 $120,000 50,000 2021 $130,000 60,000 [QUESTION] REFER TO: 04-08 55. Compute Pell's Investment in Demers account balance at December 31, 2019. A) $580,000. B) $574,400. C) $548,000. D) $542,400. E) $541,000. Answer: D Learning Objective: 04-05 Topic: Investment account balance―Equity method Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Initial Investment $500,000 + Controlling Interest Share of [Net Income for 2019 ($100,000 × .80) – Dividends for 2019 ($40,000 × .80) – Excess FV Annual Amortization ($7,000 × .80)] = $542,400 [QUESTION] REFER TO: 04-08 56. Compute Pell's investment account balance in Demers at December 31, 2020. A) $577,200. B) $604,000. C) $592,800. D) $632,800. E) $572,000. Answer: C Learning Objective: 04-05 Topic: Investment account balance―Equity method Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: December 2019 Investment Balance $542,400 + Controlling Interest Share of [Net Income for 2020 ($120,000 × .80) – Dividends for 2020 ($50,000 × .80) – Excess FV Annual Amortization ($7,000 × .80)] = $592,800 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-24 [QUESTION] REFER TO: 04-08 57. Compute Pell's investment account balance in Demers at December 31, 2021. A) $639,000. B) $643,200. C) $763,200. D) $676,000. E) $620,000. Answer: B Learning Objective: 04-05 Topic: Investment account balance―Equity method Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: December 2020 Investment Balance $592,800 + Controlling Interest Share of [Net Income for 2021 ($130,000 × .80) – Dividends for 2020 ($60,000 × .80) – Excess FV Annual Amortization ($7,000 × .80)] = $643,200 [QUESTION] REFER TO: 04-08 58. Compute Pell's income from Demers for the year ended December 31, 2019. A) $74,400. B) $73,000. C) $42,400. D) $41,000. E) $80,000. Answer: A Learning Objective: 04-04 Topic: Consolidated net income―Allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Controlling Interest Share of [Net Income for 2019 ($100,000 × .80) – Excess FV Annual Amortization ($7,000 × .80)] = $74,400 [QUESTION] REFER TO: 04-08 59. Compute Pell's income from Demers for the year ended December 31, 2020. A) $90,400. B) $89,000. C) $50,400. D) $56,000. E) $96,000. Answer: A Learning Objective: 04-04 Topic: Consolidated net income―Allocation Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-25 Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Controlling Interest Share of [Net Income for 2020 ($120,000 × .80) – Excess FV Annual Amortization ($7,000 × .80)] = $90,400 [QUESTION] REFER TO: 04-08 60. Compute Pell's income from Demers for the year ended December 31, 2021. A) $50,400. B) $56,000. C) $98,400. D) $97,000. E) $104,000. Answer: C Learning Objective: 04-04 Topic: Consolidated net income―Allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Controlling Interest Share of [Net Income for 2021 ($130,000 × .80) – Excess FV Annual Amortization ($7,000 × .80)] = $98,400 [QUESTION] REFER TO: 04-08 61. Compute the noncontrolling interest in the net income of Demers at December 31, 2019. A) $20,000. B) $12,000. C) $18,600. D) $10,600. E) $14,400. Answer: C Learning Objective: 04-04 Topic: Consolidated net income―Allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Noncontrolling Interest Share of [Net Income for 2019 ($100,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $18,600 [QUESTION] REFER TO: 04-08 62. Compute the noncontrolling interest in the net income of Demers at December 31, 2020. A) $18,400. B) $14,400. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-26 C) $22,600. D) $24,000. E) $12,600. Answer: C Learning Objective: 04-04 Topic: Consolidated net income―Allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Noncontrolling Interest Share of [Net Income for 2020 ($120,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $22,600 [QUESTION] REFER TO: 04-08 63. Compute the noncontrolling interest in the net income of Demers at December 31, 2021. A) $20,400. B) $24,600. C) $26,000. D) $14,000. E) $12,600. Answer: B Learning Objective: 04-04 Topic: Consolidated net income―Allocation Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Noncontrolling Interest Share of [Net Income for 2021 ($130,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $24,600 [QUESTION] REFER TO: 04-08 64. Compute the noncontrolling interest in Demers at December 31, 2019. A) $135,600. B) $137,000. C) $112,000. D) $100,000. E) $118,600. Answer: A Learning Objective: 04-05 Topic: Noncontrolling interest―Calculate balance Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Noncontrolling Interest at Acquisition $125,000 + Noncontrolling Interest Share of [Net Income for 2019 ($100,000 × .20) – Dividends for 2019 ($40,000 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-27 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $135,600 [QUESTION] REFER TO: 04-08 65. Compute the noncontrolling interest in Demers at December 31, 2020. A) $107,000. B) $126,000. C) $109,200. D) $149,600. E) $148,200. Answer: E Learning Objective: 04-05 Topic: Noncontrolling interest―Calculate balance Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: December 2019 Noncontrolling Interest Balance $135,600 + Noncontrolling Interest Share of [Net Income for 2020 ($120,000 × .20) – Dividends for 2020 ($50,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $148,200 [QUESTION] REFER TO: 04-08 66. Compute the noncontrolling interest in Demers at December 31, 2021. A) $107,800. B) $140,000. C) $165,200. D) $160,800. E) $146,800. Answer: D Learning Objective: 04-05 Topic: Noncontrolling interest―Calculate balance Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: December 2020 Noncontrolling Interest Balance $148,200 + Noncontrolling Interest Share of [Net Income for 2021 ($130,000 × .20) – Dividends for 2021 ($60,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $160,800 REFERENCE: 04-09 Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 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: Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-28 2019 Net income $100,000 Dividends 40,000 2020 $120,000 50,000 2021 $130,000 60,000 Assume the initial value method is applied. [QUESTION] REFER TO: 04-09 67. Compute Pell's investment in Demers at December 31, 2019. A) $500,000. B) $574,400. C) $625,000. D) $542,400. E) $532,000. Answer: A Learning Objective: 04-05 Topic: Initial value or Partial equity accounting Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Initial Investment = $500,000 [QUESTION] REFER TO: 04-09 68. Compute Pell's investment in Demers at December 31, 2020. A) $625,000. B) $664,800. C) $592,400. D) $500,000. E) $572,000. Answer: D Learning Objective: 04-05 Topic: Initial value or Partial equity accounting Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Initial Investment = $500,000 [QUESTION] REFER TO: 04-09 69. Compute Pell's investment in Demers at December 31, 2021. A) $592,400. B) $500,000. C) $625,000. D) $676,000. E) $620,000. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-29 Answer: B Learning Objective: 04-05 Topic: Initial value or Partial equity accounting Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Initial Investment = $500,000 [QUESTION] REFER TO: 04-09 70. How much does Pell record as Income from Demers for the year ended December 31, 2019? A) $32,000. B) $74,400. C) $73,000. D) $42,400. E) $41,000. Answer: A Learning Objective: 04-04 Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: 2019 Dividends $40,000 × .80 = $32,000 [QUESTION] REFER TO: 04-09 71. How much does Pell record as Income from Demers for the year ended December 31, 2020? A) $90,400. B) $40,000. C) $89,000. D) $50,400. E) $56,000. Answer: B Learning Objective: 04-05 Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: 2020 Dividends $50,000 × .80 = $40,000 [QUESTION] REFER TO: 04-09 72. How much does Pell record as Income from Demers for the year ended December 31, 2021? A) $48,000. B) $56,000. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-30 C) $98,400. D) $97,000. E) $50,400. Answer: A Learning Objective: 04-04 Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: 2021 Dividends $60,000 × .80 = $48,000 [QUESTION] REFER TO: 04-09 73. Compute the noncontrolling interest in the net income of Demers at December 31, 2019. A) $12,000. B) $10,600. C) $18,600. D) $20,000. E) $14,400. Answer: C Learning Objective: 04-05 Topic: Noncontrolling interest―Calculate balance Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Noncontrolling Interest Share of [Net Income for 2019 ($100,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $18,600 [QUESTION] REFER TO: 04-09 74. Compute the noncontrolling interest in the net income of Demers at December 31, 2020. A) $18,400. B) $14,000. C) $22,600. D) $24,000. E) $12,600. Answer: C Learning Objective: 04-04 Topic: Consolidated net income―Allocation Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Noncontrolling Interest Share of [Net Income for 2020 ($120,000 × .20) – Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-31 Excess FV Annual Amortization ($7,000 × .20)] = $22,600 [QUESTION] REFER TO: 04-09 75. Compute the noncontrolling interest in the net income of Demers at December 31, 2021. A) $24,600. B) $14,000. C) $26,000. D) $20,400. E) $12,600. Answer: A Learning Objective: 04-04 Topic: Consolidated net income―Allocation Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Noncontrolling Interest Share of [Net Income for 2021 ($130,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $24,600 [QUESTION] REFER TO: 04-09 76. Compute the noncontrolling interest in Demers at December 31, 2019. A) $135,600. B) $ 80,000. C) $117,000. D) $100,000. E) $110,600. Answer: A Learning Objective: 04-05 Topic: Noncontrolling interest―Calculate balance Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Noncontrolling Interest at Acquisition $125,000 + Noncontrolling Interest Share of [Net Income for 2019 ($100,000 × .20) – Dividends for 2019 ($40,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $135,600 [QUESTION] REFER TO: 04-09 77. Compute the noncontrolling interest in Demers at December 31, 2020. A) $126,000. B) $106,000. C) $109,200. D) $149,600. E) $148,200. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-32 Answer: E Learning Objective: 04-05 Topic: Noncontrolling interest―Calculate balance Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: December 2019 Noncontrolling Interest Balance $135,600 + Noncontrolling Interest Share of [Net Income for 2020 ($120,000 × .20) – Dividends for 2020 ($50,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $148,200 [QUESTION] REFER TO: 04-09 78. Compute the noncontrolling interest in Demers at December 31, 2021. A) $107,800. B) $140,000. C) $ 80,000. D) $ 50,000. E) $160,800. Answer: E Learning Objective: 04-05 Topic: Noncontrolling interest―Calculate balance Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: December 2020 Noncontrolling Interest Balance $148,200 + Noncontrolling Interest Share of [Net Income for 2021 ($130,000 × .20) – Dividends for 2021 ($60,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $160,800 REFERENCE: 04-10 Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 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: 2019 Net income $100,000 Dividends 40,000 2020 $120,000 50,000 2021 $130,000 60,000 Assume the partial equity method is applied. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-33 [QUESTION] REFER TO: 04-10 79. Compute Pell's investment in Demers at December 31, 2019. A) $625,000. B) $574,400. C) $548,000. D) $542,400. E) $532,000. Answer: C Learning Objective: 04-05 Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Initial Investment $500,000 + Controlling Interest Share of [Net Income for 2019 ($100,000 × .80) – Dividends for 2019 ($40,000 × .80)] = $548,000 [QUESTION] REFER TO: 04-10 80. Compute Pell's investment in Demers at December 31, 2020. A) $676,000. B) $629,000. C) $580,000. D) $604,000. E) $572,000. Answer: D Learning Objective: 04-05 Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: December 2019 Investment Balance $548,000 + Controlling Interest Share of [Net Income for 2020 ($120,000 × .80) – Dividends for 2020 ($50,000 × .80)] = $604,000 [QUESTION] REFER TO: 04-10 81. Compute Pell's investment in Demers at December 31, 2021. A) $780,000. B) $660,000. C) $785,000. D) $676,000. E) $620,000. Answer: B Learning Objective: 04-05 Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-34 Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: December 2020 Investment Balance $604,000 + Controlling Interest Share of [Net Income for 2021 ($130,000 × .80) – Dividends for 2020 ($60,000 × .80)] = $660,000 [QUESTION] REFER TO: 04-10 82. How much does Pell record as Income from Demers for the year ended December 31, 2019? A) $80,000. B) $74,400. C) $73,000. D) $42,400. E) $41,000. Answer: A Learning Objective: 04-05 Topic: Initial value or Partial equity accounting Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Controlling Interest Share of Net Income for 2019 ($100,000 × .80) = $80,000 [QUESTION] REFER TO: 04-10 83. How much does Pell record as income from Demers for the year ended December 31, 2020? A) $90,400. B) $89,000. C) $50,400. D) $96,000. E) $56,000. Answer: D Learning Objective: 04-05 Topic: Initial value or Partial equity accounting Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Controlling Interest Share of Net Income for 2020 ($120,000 × .80) = $96,000 [QUESTION] REFER TO: 04-10 84. How much does Pell record as income from Demers for the year ended December 31, 2021? A) $ 98,400. B) $ 56,000. C) $104,000. Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-35 D) $ 97,000. E) $ 50,400. Answer: C Learning Objective: 04-05 Topic: Initial value or Partial equity accounting Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Controlling Interest Share of Net Income for 2021 ($130,000 × .80) = $104,000 [QUESTION] REFER TO: 04-10 85. Compute the noncontrolling interest in the net income of Demers at December 31, 2019. A) $20,000. B) $12,000. C) $18,600. D) $10,600. E) $14,400. Answer: C Learning Objective: 04-04 Topic: Consolidated net income―Allocation Topic: Initial value or Partial equity accounting Difficulty: 1 Easy Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Noncontrolling Interest Share of [Net Income for 2019 ($100,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $18,600 [QUESTION] REFER TO: 04-10 86. Compute the noncontrolling interest in the net income of Demers at December 31, 2020. A) $18,400. B) $14,000. C) $22,600. D) $24,000. E) $12,600. Answer: C Learning Objective: 04-04 Topic: Consolidated net income―Allocation Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Noncontrolling Interest Share of [Net Income for 2020 ($120,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $22,600 Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Page 4-36 [QUESTION] REFER TO: 04-10 87. Compute the noncontrolling interest in the net income of Demers at December 31, 2021. A) $20,400. B) $26,000. C) $24,600. D) $14,000. E) $12,600. Answer: C Learning Objective: 04-04 Topic: Consolidated net income―Allocation Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Noncontrolling Interest Share of [Net Income for 2021 ($130,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $24,600 [QUESTION] REFER TO: 04-10 88. Compute the noncontrolling interest in Demers at December 31, 2019. A) $135,600. B) $114,000. C) $112,000. D) $100,000. E) $110,600. Answer: A Learning Objective: 04-05 Topic: Noncontrolling interest―Calculate balance Topic: Initial value or Partial equity accounting Difficulty: 2 Medium Blooms: Apply AACSB: Knowledge Application AICPA BB: Critical Thinking AICPA FN: Measurement Feedback: Noncontrolling Interest at Acquisition $125,000 + Noncontrolling Interest Share of [Net Income for 2019 ($100,000 × .20) – Dividends for 2019 ($40,000 × .20) – Excess FV Annual Amortization ($7,000 × .20)] = $135,600 [QUESTION] REFER TO: 04-10 89.