TEST BANK FOR CONSOLIDATION OF WHOLLY OWNED SUBSIDIARIES

TEST BANK FOR CONSOLIDATION OF WHOLLY OWNED SUBSIDIARIES TEST BANK FOR Consolidation of Wholly Owned Subsidiaries Multiple Choice Questions On July 1, 2009, Link Corporation paid $340,000 for all of Tinsel Company's outstanding common stock. On that date, the costs and fair values of Tinsel's recorded assets and liabilities were as follows: 1. Based on the preceding information, the differential reflected in a consolidation workpaper to prepare a consolidated balance sheet immediately after the business combination is: A. $0. B. $25,000. C. $70,000. D. $45,000. 2. Based on the preceding information, what amount should be allocated to goodwill in the consolidated balance sheet, prepared after this business combination? A. $0 B. $25,000 C. $70,000 D. $45,000 4-2 On December 31, 2009, Add-On Company acquired 100 percent of Venus Corporation's common stock for $300,000. Balance sheet information Venus just prior to the acquisition is given here: At the date of the business combination, Venus's net assets and liabilities approximated fair value except for inventory, which had a fair value of $60,000, land which had a fair value of $125,000, and buildings and equipment (net), which had a fair value of $250,000. 3. Based on the information provided, what amount of inventory will be included in the consolidated balance sheet immediately following the acquisition? A. $60,000 B. $75,000 C. $15,000 D. $45,000 4-3 4. Based on the information provided, what amount of goodwill will be included in the consolidated balance sheet immediately following the acquisition? A. $30,000 B. $15,000 C. $85,000 D. $45,000 5. Based on the information provided, what amount of differential will be reflected in a consolidation workpaper to prepare a consolidated balance sheet immediately after the business combination? A. $0 B. $45,000 C. $15,000 D. $85,000 6. Based on the information provided, what amount will be included as investment in Venus Corporation in the consolidated balance sheet immediately following the acquisition? A. $0 B. $395,000 C. $255,000 D. $300,000 4-4 Enya Corporation acquired 100 percent of Celtic Corporation's common stock on January 1, 2009. Summarized balance sheet information for the two companies immediately after the combination is provided: 7. Based on the preceding information, the amount of differential associated with the acquisition is: A. $0. B. $58,000. C. $22,000. D. $36,000. 8. Based on the information provided, the consolidated balance sheet of Enya and Celtic will reflect goodwill in the amount of: A. $0. B. $58,000. C. $22,000. D. $36,000. 4-5 9. On January 1, 2008, Blake Company acquired all of Frost Corporation's voting shares for $280,000 cash. On December 31, 2009, Frost owed Blake $5,000 for services provided during the year. When consolidated financial statements are prepared for 2009, which entry is needed to eliminate intercompany receivables and payables in the consolidation workpaper? A. Option A B. Option B C. Option C D. Option D 4-6 Pace Corporation acquired 100 percent of Spin Company's common stock on January 1, 2009. Balance sheet data for the two companies immediately following the acquisition follow: At the date of the business combination, the book values of Spin's net assets and liabilities approximated fair value except for inventory, which had a fair value of $60,000, and land, which had a fair value of $50,000. The fair value of land for Pace Corporation was estimated at $80,000 immediately prior to the acquisition. 10. Based on the preceding information, at what amount should total land be reported in the consolidated balance sheet prepared immediately after the business combination? A. $130,000 B. $105,000 C. $115,000 D. $120,000 4-7 11. Based on the preceding information, what amount of total assets will appear in the consolidated balance sheet prepared immediately after the business combination? A. $756,000 B. $735,000 C. $750,000 D. $642,000 12. Based on the preceding information, what is the differential associated with the acquisition? A. $15,000 B. $21,000 C. $6,000 D. $10,000 13. Based on the preceding information, what amount of goodwill will be reported in the consolidated balance sheet prepared immediately after the business combination? A. $0 B. $21,000 C. $6,000 D. $15,000 14. Based on the preceding information, what amount of liabilities will be reported in the consolidated balance sheet prepared immediately after the business combination? A. $615,000 B. $406,000 C. $300,000 D. $265,000 15. Based on the preceding information, what amount of retained earnings will be reported in the consolidated balance sheet prepared immediately after the business combination? A. $300,000 B. $409,000 C. $259,000 D. $191,000 4-8 16. Based on the preceding information, what amount of total stockholder's equity will be reported in the consolidated balance sheet prepared immediately after the business combination? A. $300,000 B. $479,000 C. $315,000 D. $350,000 On December 31, 2008, Mercury Corporation acquired 100 percent ownership of Saturn Corporation. On that date, Saturn reported assets and liabilities with book values of $300,000 and $100,000, respectively, common stock outstanding of $50,000, and retained earnings of $150,000. The book values and fair values of Saturn's assets and liabilities were identical except for land which had increased in value by $10,000 and inventories which had decreased by $5,000. 17. Based on the preceding information, what amount of differential will appear in the eliminating entries required to prepare a consolidated balance sheet immediately after the business combination, if the acquisition price was $240,000? A. $0 B. $40,000 C. $25,000 D. $5,000 18. Based on the preceding information, what amount of goodwill will be reported if the acquisition price was $240,000? A. $0 B. $40,000 C. $15,000 D. $35,000 4-9 19. Based on the preceding information, which of the following will pertain to the differential that will appear in the eliminating entries required to prepare a consolidated balance sheet immediately after the business combination, if the acquisition price was $195,000? A. Debit balance of $15,000 B. Credit balance of $15,000 C. Credit balance of $5,000 D. Debit balance of $5,000 20. Based on the preceding information, what amount of goo