Solved by verified expert :1.
Account
Investor
Investee
Sales
$500,000
$300,000
Cost of Goods Sold
230,000
170,000
Gross
Profit
$270,000
$130,000
Selling
& Admin.
120,000
100,000
Expenses
Net
Income
$150,000
$ 30,000
========
========
Dividends paid
50,000
10,000
Assuming
Investor owns 70% of Investee. What is the amount that will be recorded as Net
Income for the Controlling Interest?
a.
$164,000
b.
$171,000
c.
$178,000
d. $180,000
2.
Consolidated
financial statements are designed to provide:
a.
informative information to all shareholders.
b. the results
of operations, cash flow, and the balance sheet in an understandable and
informative manor for creditors.
c. the results
of operations, cash flow, and the balance sheet as if there was a single
entity.
d. subsidiary information for
the subsidiary shareholders.
3.
The
FASB Exposure Draft assumes consolidation financial statements are appropriate
even without a majority of controlling share if which of the following exists:
a. the
subsidiary has the right to appoint member’s of the parent company’s board of
directors.
b. the parent
company has the right to appoint a majority of the members of the subsidiary’s
board of directors through a large minority voting interest.
c.
the subsidiary owns a large minority voting interest
in the parent company.
d.
The parent company has an ability to assume the role
of general partner in a limited partnership with the approval of the
subsidiary’s board of directors.
Chapter 2
4.
The SEC and FASB has recommended that a parent
corporation should consolidate the financial statements of the subsidiary into
its financial statements when it exercises control over the subsidiary, even
without majority ownership. In which of the following situations would control
NOT be evident?
a.
Access to subsidiary assets is available to all
shareholders.
b.
Dividend policy is set by the parent.
c. The
subsidiary does not determine compensation for its main employees.
d. Substantially
all cash flows of the subsidiary flow to the controlling shareholders.
5.
The
goal of the consolidation process is for:
a.
asset acquisitions and stock acquisitions to result
in the same balance sheet.
b. goodwill to
appear on the balance sheet of the consolidated entity.
c. the assets
of the noncontrolling interest to be predominately displayed on the balance
sheet.
d. the
investment in the subsidiary to be properly valued on the consolidated balance
sheet.
6.
A subsidiary was acquired for cash in a business
combination on December 31, 20X1. The purchase price exceeded the fair value of
identifiable net assets. The acquired company owned equipment with a fair value
in excess of the book value as of the date of the combination. A consolidated
balance sheet prepared on December 31, 20X1, would
a. report the
excess of the fair value over the book value of the equipment as part of
goodwill.
b. report the
excess of the fair value over the book value of the equipment as part of the
plant and equipment account.
c. reduce
retained earnings for the excess of the fair value of the equipment over its
book value.
d.
make no adjustment for the excess of the fair value
of the equipment over book value. Instead, it is an adjustment to expense over
the life of the equipment.
5
2-2
Chapter 2
7.
Parr Company purchased 100% of the voting common
stock of Super Company for $2,000,000. There are no liabilities. The following
book and fair values are available:
………………….
Current assets
Book Value
Fair
Value
$300,000
$600,000
Land and
building……………….
600,000
900,000
Machinery………………………
500,000
600,000
Goodwill……………………….
100,000
?
The machinery will appear on the consolidated
balance sheet at ________.
a.
$560,000
b.
$860,000
c.
$600,000
d. $900,000
8.
Pagach Company purchased 100% of the voting common
stock of Rage Company for $1,800,000. The following book and fair values are
available:
………………….
Current assets
Book Value
Fair Value
$
150,000
$300,000
Land and
building……………….
280,000
280,000
Machinery………………………
400,000
700,000
Bonds
payable…………………..
(300,000)
(250,000)
Goodwill……………………….
150,000
?
The bonds payable will appear on the
consolidated balance sheet
a. at $300,000 (with no premium
or discount shown).
b.
at $300,000 less a discount of $50,000.
c.
at $0; assets are recorded net of liabilities.
d. under a net amount of
$250,000 since it is a bargain purchase.
9.
The investment in a subsidiary recorded as a
purchase by the parent should be recorded on the parent’s books at
a.
underlying book value of the subsidiary’s net
assets.
b.
the fair value of the subsidiary’s net identifiable
assets.
c.
the fair value of the consideration given.
d. the fair
value of the consideration given plus an estimated value for goodwill.
10. Which of
the following costs of a business combination are included in the value charged
to paid-in-capital in excess of par?
a.
direct and indirect acquisition costs
b.
direct acquisition costs
c. direct
acquisition costs and stock issue costs if stock is issued as consideration
d. stock issue costs if stock
is issued as consideration
2-3
Chapter 2
11.
When it purchased Sutton, Inc. on January 1, 20X1,
Pavin Corporation issued 500,000 shares of its $5 par voting common stock. On
that date the fair value of those shares totaled $4,200,000. Related to the
acquisition, Pavin had payments to the attorneys and accountants of $200,000,
and stock issuance fees of $100,000. Immediately prior to the purchase, the
equity sections of the two firms appeared as follows:
……………………
Common stock
Pavin
Sutton
$ 4,000,000
$
700,000
Paid-in capital in excess of
par….
7,500,000
900,000
Retained earnings……………….
5,500,000
500,000
………………………….Total
$17,000,000
$2,100,000
===========
==========
Immediately
after the purchase, the consolidated balance sheet should report paid-in
capital in excess of par of
a.
$8,900,000
b.
$9,100,000
c.
$9,200,000
d. $9,300,000
12.
Judd Company issued nonvoting preferred stock with a
fair value of $1,500,000 in exchange for all the outstanding common stock of
the Bath Corporation. On the date of the exchange, Bath had tangible net assets
with a book value of $900,000 and a fair value of $1,400,000. In addition, Judd
issued preferred stock valued at $100,000 to an individual as a finder’s fee
for arranging the transaction. As a result of these transactions, Judd should
report an increase in net assets of
__________.
a.
$900,000
b.
$1,400,000
c.
$1,500,000
d. $1,600,000
13.
In an 80% purchase accounted for as a tax-free
exchange, the excess of cost over book value is $200,000. The equipment’s book
value for tax purposes is $100,000 and its fair value is $150,000. All other
identifiable assets and liabilities have fair values equal to their book
values. The tax rate is 30%. What is the total deferred tax liability that
should be recognized on the consolidated balance sheet on the date of purchase?
a.
$12,000
b.
$60,000
c.
$72,857
d. $85,714
2-4
Chapter 2
14.
On June 30, 20X1, Naeder Corporation purchased for
cash at $10 per share all 100,000 shares of the outstanding common stock of the
Tedd Company. The total fair value of all identifiable net assets of Tedd was
$1,400,000. The only noncurrent asset is property with a fair value of
$350,000. The consolidated balance sheet of Naeder and its wholly owned subsidiary
on June 30, 20X1, should reflect
a.
an extraordinary gain of $50,000.
b.
goodwill of $50,000.
c.
an extraordinary gain of $350,000.
d. goodwill of $350,000.
