Deck 3: Consolidated Financial Statements: Date of Acquisition

Question 1

What is the most likely reason why a company may take steps to avoid consolidating another company?

A) Consolidation reduces total assets.
B) Consolidation increases leverage.
C) Consolidation is confusing, since the other company's account balances are hard to find.
D) Consolidation requires the parent company to maintain the subsidiary's books.

Answer 1

Consolidation increases leverage.

Question 2

What is the purpose of consolidated financial statements, per the FASB Codification?

A) Present financial statements that put the parent company in the best light.
B) Highlight the separate performance of the subsidiary.
C) Represent the results of activities under the control of the parent.
D) Represent the results of activities under rthe control of the subsidiary.

Answer 2

Represent the results of activities under the control of the parent.

Question 3

A key concept in determining whether to consolidate an investee is:

A) The percentage ownership of the investee's voting stock
B) Whether or not the investee carries a significant amount of debt owed to the investor
C) Whether or not the assets and liabilities of the investee are reported at fair value
D) Whether the investor has the power to direct the activities of the investee

Answer 3

Whether the investor has the power to direct the activities of the investee

Question 4

U.S. GAAP criteria for consolidation are found in:

A) ASC Topic 805
B) ASC Topic 810
C) ASC Topic 825
D) ASC Topic 350

Question 5

While companies can create special purpose entities for sound business reasons, they can also make their financial statements look better by creating these entities and then not including them on their financial statements, primarily because:

A) Debt is under-reported
B) Expenses are under-reported
C) Assets are over-reported
D) Assets are under-reported

Question 6

GM forms a separate legal entity, funded mostly by debt. The entity acquires a building and leases it to GM. GM guarantees the residual value of the building. If GM does not consolidate the entity, how does this reporting choice affect GM's financial statements, as compared with consolidating the entity?

A) GM's interest expense is overstated.
B) GM's debt is overstated.
C) GM's assets are understated.
D) GM's capital stock is understated.

Question 7

General Motors owns 50% of the voting stock of three companies in China. General Motors most likely

A) Consolidates the entities because General Motors controls their decisions.
B) Reports the investments using the equity method, because General Motors owns between 20% and 50% of the entities' voting stock.
C) Consolidates the entities because General Motors is their largest customer.
D) Reports the investments as an investment without significant influence, because General Motors owns less than a majority of their voting stock.

Question 8

Prival Company acquires 49.99% of the voting stock of Schaffer Company. From the viewpoint of readers of the financial statements, the most important factor Prival should consider when deciding whether to consolidate Schaffer in its financial statements is:

A) Prival's percentage ownership of Schaffer's stock
B) Whether consolidation will make it harder for Prival to borrow money
C) Whether Prival follows IFRS or U.S. GAAP
D) Whether Prival controls the performance of Schaffer

Question 9

According to U.S. GAAP, when should the financial information of Company A and Company B be consolidated on one balance sheet?

A) Company A owns 100% of the voting stock of Company B.
B) Company A controls the decisions made by Company B's managers.
C) Company A owns over 50% of the voting stock of Company B.
D) Company A's managers have the majority of the seats on Company B's Board of Directors.

Question 10

Following U.S. GAAP, a company consolidates its majority-owned subsidiary unless:

A) Control is temporary
B) The subsidiary is a financial institution
C) The subsidiary is substantially smaller than its parent company
D) The subsidiary is highly leveraged

Question 11

Following U.S. GAAP, if a company owns over 50% of the voting stock of another company:

A) It is required to consolidate the company.
B) It consolidates the company unless the stock ownership does not result in control.
C) It treats the investment as an equity method investment unless it is a joint venture, which is consolidated.
D) It consolidates the company unless it is a special purpose entity.

Question 12

Petron, a U.S. company, owns the majority of the voting stock of Sego. Petron consolidates Sego unless:

A) Sego is in an underdeveloped country.
B) Sego deals with products or services that are not Petron's primary focus.
C) Sego is bankrupt.
D) The shares of Sego that are not owned by Petron are owned by one investor.

Question 13

Preston Company, a U.S. auto part manufacturer, owns the majority of the voting stock of SEO Bearings Company, located in China. Preston uses the equity method to report its investment in SEO Bearings. Which situation justifies this reporting choice?

A) SEO is controlled by the Chinese government.
B) SEO is located in China.
C) SEO's board of directors includes representation from other entities.
D) SEO's decisions are the responsibility of SEO's CEO.

Question 14

When assessing whether you control another entity, it is important to consider "kick-out rights" because although it appears that you control the entity's decisions,

A) You may only own rights to voting shares, rather than the shares themselves.
B) You may be acting as an agent for the real decision makers.
C) You may not make the types of decisions that significantly affect the overall entity's performance.
D) You may own the entity's convertible instruments, rather than its voting shares.

Question 15

A U.S. financial services company sets up a special purpose entity to buy accounts receivable from its clients. The financial services company should not consolidate the assets and liabilities of the SPE if:

A) The SPE is not a variable interest entity.
B) Holders of the SPE's stock are also clients of the financial services company.
C) The SPE's total equity is more than 50% of the SPE's total assets.
D) The financial services company guarantees the SPE's debt.

Question 16

U.S. GAAP specifies all the following characteristics of variable interest entities except:

A) Total equity investment at risk does not allow the entity to finance its activities without subordinated financial support of other entities.
B) Equity holders do not have voting rights.
C) Equity holders hold less than 5% of the entity's voting stock.
D) Equity holders do not have the right to receive the entity's expected residual returns.

Question 17

Acme, a U.S. company, has a financial relationship with Zeta, but does not own any of its voting stock. When should Acme consolidate Zeta's accounts in its annual report?

A) Never
B) Zeta is a variable interest entity.
C) Zeta is a variable interest entity and Acme is its primary beneficiary.
D) Acme controls Zeta's operations.

Question 18

Persuasive qualitative evidence that an entity is not a variable interest entity, per U.S. GAAP, includes which one of the following?

A) The entity is the sole supplier to another entity, and its profit margin is comparable to its competitors.
B) The entity has issued preferred and common stock, and the shareholders are guaranteed a certain return on their investment.
C) The entity's equity level is greater than that of similar entities that do not require their debt to be guaranteed by another party.
D) The entity has a debt to equity ratio that is higher than that of its competitors.

Question 19

Persuasive qualitative evidence that an entity is not a variable interest entity, per U.S. GAAP, includes which one of the following?

A) The entity's business is not focused on just a few customers.
B) The entity's shareholders are guaranteed a certain return on their investment.
C) The entity can borrow based on its own creditworthiness.
D) The entity has never issued equity shares with no voting interests.

Question 20

ABC has a financial relationship with XYZ and must include XYZ's assets and liabilities on its balance sheet. The consolidation process values XYZ's assets and liabilities:

A) At their book values at the date it is established that ABC is the primary beneficiary of XYZ, if ABC and XYZ are not already under common control.
B) At their fair values at the date it is established that ABC is the primary beneficiary of XYZ, if ABC and XYZ are already under common control.
C) At their book values at the date it is established that ABC is the primary beneficiary of XYZ, regardless of whether ABC and XYZ are already under common control.
D) At their fair values at the date it is established that ABC is the primary beneficiary of XYZ, if ABC and XYZ are not already under common control.

Question 21

Peters Inc. consolidates a variable interest entity even though it owns none of the entity's equity. The appropriate values of the VIE's assets exceed those of its liabilities. The difference between the VIE's assets and liabilities is reported on Peters' balance sheet:

A) In equity, as "noncontrolling interest"
B) In equity, as an increase in retained earnings
C) As a noncurrent liability
D) As a contra to the investment account reported in Peters' assets

Question 22

A company decides it is required to consolidate a special interest entity. The assets and liabilities of that entity are consolidated at book value, and not revalued to fair value, when

A) The company owns some of the stock of the entity.
B) The company and the entity are already under common control.
C) The company becomes the primary beneficiary of the entity.
D) The entity is not previously under the control of the company.

Question 23

Tyvo is a separate legal entity that securitizes receivables for a variety of financial institutions. It was formed with an investment of $100 million. Qualitative analysis is inconclusive regarding whether Tyvo is a variable interest entity. Quantitative analysis indicates that Tyvo's expected future cash flows are as follows, in millions (assume all cash flows occur at the end of the first year):
$$\begin{array} { | c | c | } \hline \text { Expected Cash Flows } & \text { Probability } \\\hline \$ 84 & 0.40 \\\hline 144 & 0.60 \\\hline\end{array}$$ A risk-adjusted discount rate of 20% is appropriate.
Tyvo is likely to be considered a variable interest entity, per U.S. GAAP, if its equity financing is less than what amount?

A) $100 million
B) $25 million
C) $10 million
D) $12 million

Question 24

Ulon is a separate legal entity that provides leasing services. It was formed with an investment of $85 million, of which $76.4 million was financed by debt, and the remainder was provided by outside equity interests. Qualitative analysis is inconclusive in determining whether Ulon is a variable interest entity. Quantitative analysis indicates that Ulon's expected future cash flows are as follows, in millions (assume a one-year time frame, with cash flows occurring at the end of the year):
$$\begin{array} { | c | c | } \hline \text { Expected Cash Flows } & \text { Probability } \\\hline \$ 115.00 & 0.60 \\\hline 80.50 & 0.30 \\\hline 46.00 & 0.10 \\\hline\end{array}$$ A risk-adjusted discount rate of 15% is appropriate.
Is Ulon likely to be a variable interest entity, per U.S. GAAP?

A) No, because the equity interest of $8.6 million is more than 10% of total financing.
B) Yes, because the equity interest of $8.6 million is less than expected losses of $9 million.
C) No, because the equity interest of $8.6 million is more than expected losses of $6.5 million.
D) Yes, because the equity interest of $8.6 million is more than 10% of total assets.

Question 25

If a subsidiary has a different accounting year-end than its parent,

A) The subsidiary must change its accounting year to match that of the parent.
B) The parent must change its accounting year to match that of the subsidiary.
C) The subsidiary's year-end can differ from that of the parent, up to three months.
D) The subsidiary's year-end can differ from that of the parent, up to six months.

Question 26

A parent company uses IFRS and has a subsidiary whose books are maintained following U.S. GAAP. The consolidated financial statements of the parent include the subsidiary's accounts, reported using:

A) IFRS
B) U.S. GAAP
C) Either IFRS or U.S. GAAP, since both are acceptable
D) A combination of IFRS and U.S. GAAP, depending on the account

Question 27

A parent company uses U.S. GAAP and presents its financial statements in U.S. dollars. It has a subsidiary in Singapore whose books are maintained in Singapore dollars, following IFRS. The subsidiary's accounts are included in the consolidated financial statements of the parent:

A) in Singapore dollars, following IFRS.
B) in Singapore dollars, following U.S. GAAP.
C) in U.S. dollars, following IFRS.
D) in U.S. dollars, following U.S. GAAP.

Question 28

The consolidated balance sheet of a parent and subsidiary reports account balances as if the parent accounted for its investment in the subsidiary as a:

A) Significant influence investment.
B) Investment with no influence.
C) Merger.
D) Variable interest entity.

Question 29

When consolidating the balance sheets of a parent and its subsidiary at the date of acquisition, the overall effect of consolidation eliminating entries is to:

A) Remove the full balance of the parent's investment account and the subsidiary's equity accounts.
B) Remove the book value of the parent's investment account, the subsidiary's capital stock accounts, and revalue the subsidiary's tangible assets to fair value.
C) Remove the subsidiary's equity accounts and revalue the subsidiary's assets and liabilities to fair value.
D) Remove the full balance of the parent's investment account and the subsidiary's equity accounts and adjust the subsidiary's assets and liabilities to fair value at the date of acquisition.

Question 30

Which account balance is always reported at the same amount on the parent's balance sheet and on the consolidated balance sheet of the parent and its subsidiary at the date of acquisition?

A) Retained earnings
B) Goodwill
C) Inventories
D) Identifiable intangible assets

Question 31

Which one of the following accounts of an acquired company will not appear on a consolidated balance sheet at the date of acquisition?

A) Identifiable intangible assets
B) Treasury stock
C) Bond payable
D) Investments in equity securities

Question 32

Which one of the following balances appears on a consolidated balance sheet at the date of acquisition?

A) Investment in subsidiary, reported on the parent's books
B) Dividends, reported on the parent's books
C) Identifiable intangible assets, reported on the parent's books
D) Accumulated other comprehensive income, reported on the subsidiary's books

Question 33

Porwal Parts acquires all the voting stock of Stonegate Supplies for $40 million. Stonegate's book value was $10 million at the date of acquisition. Stonegate's assets and liabilities are carried at amounts approximating fair value, but it has previously unrecognized brand names valued at $8,000,000. Consolidation eliminating entry (R), at the date of acquisition, includes a(n):

A) $8 million debit to identifiable intangible assets
B) $40 million credit to the investment account
C) $32 million debit to goodwill
D) $10 million debit to Stonegate's equity accounts

Question 34

Porwal Parts acquires all the voting stock of Stonegate Supplies for $50 million. Stonegate's book value was $11 million at the date of acquisition, consisting of capital stock of $1 million, retained earnings of $12 million, and accumulated other comprehensive loss of $2 million. Stonegate's assets and liabilities are carried at amounts approximating fair value, and it has no previously unreported identifiable intangible assets. Consolidation eliminating entry (E), at the date of acquisition, includes a(n):

A) $1 million credit to capital stock
B) $2 million credit to accumulated other comprehensive loss
C) $12 million credit to retained earnings
D) $50 million credit to investment in Stonegate

Question 35

GMI acquires all of the voting stock of ELI for an acquisition cost that is $4 million above the book value of ELI's net assets. At the date of acquisition, ELI's equipment was overvalued by $2 million and its reported intangible assets were undervalued by $6 million.
Consolidation eliminating entry R, at the date of acquisition, includes a(n):

A) $2 million debit to equipment
B) $8 million credit to the investment account
C) $4 million debit to goodwill
D) $6 million debit to intangible assets

Question 36

Palm Corporation acquired all the stock of Sequoia Company, at an acquisition cost that was $5,000,000 in excess of Sequoia's $1,000,000 book value. All of Sequoia's assets and liabilities are carried at amounts approximating fair value, except that land is overvalued by $500,000 and long-term debt is overvalued by $200,000. Which of the following is false concerning the consolidation eliminating entries at the date of acquisition?

A) Eliminating entry (E) reduces the investment by $1,000,000
B) Eliminating entry (R) increases long-term debt by $200,000
C) Eliminating entry (R) reduces the investment by $5,000,000
D) Eliminating entry (R) increases goodwill by $5,300,000

Question 37

Pringle Corporation acquired all the stock of Sunny Company, at an acquisition cost of $30 million. Sunny's book value at the time was $10 million. Sunny's current assets and all liabilities were carried at amounts approximating fair value. However, its plant assets were overvalued by $6 million. Sunny also has previously unreported developed technology valued at $4 million.
Which of the following is false concerning the consolidation eliminating entries at the date of acquisition?

A) Eliminating entry (E) reduces the investment by $10 million.
B) Eliminating entry (R) increases goodwill by $12 million.
C) Eliminating entry (R) increases identifiable intangible assets by $4 million.
D) Eliminating entry (E) reduces Sunny's shareholders' equity by $10 million.

Question 38

PMC Corporation acquired all of the stock of SVB Company, at an acquisition cost of $10 million in cash. SVB's book value at the time was $8 million. SVB's net assets are reported at amounts approximating market value at the date of acquisition. However, it has previously unreported brand names and favorable lease agreements, valued at a total of $3 million. Which of the following is true concerning consolidation of PMC and SVB at the date of acquisition?

A) Eliminating entry (E) reduces the investment by $10 million.
B) Eliminating entry (R) creates a bargain gain of $1 million, to be reported on the consolidated balance sheet.
C) PMC reports its investment in SVB, on its own books, at $11 million.
D) Eliminating entry (R) values the previously unreported identifiable intangible assets at $2 million.

Question 39

Power Inc. acquires all the voting stock of Signal Company for $30,000,000 in cash. At the date of acquisition, Signal's balance sheet is as follows:
$$\begin{array} { | l | c | c | } \hline & \begin{array} { c } \text { Book Value } \\\text { Dr (Cr) }\end{array} & \begin{array} { c } \text { Fair Value } \\\text { Dr (Cr) }\end{array} \\\hline \text { Tangible assets } & \$ 15,000,000 & \$ 14,000,000 \\\hline \text { Goodwill } & 5,000,000 & 7,000,000 \\\hline \text { Liabilities } & \{ 12,000,000 \} & \{ 12,000,000 \} \\\hline \text { Equity } & \{ 8,000,000 \} & \\\hline\end{array}$$ What amount of consolidated goodwill is recognized for this acquisition in eliminating entry (R) at the date of acquisition?

A) $7,000,000
B) $12,000,000
C) $23,000,000
D) $28,000,000

Question 40

Use the following information to answer bellow Questions :
Precision Company acquires all of Springfield Company's voting stock for $5,000,000 in cash. Information on Springfield's assets and liabilities at the date of acquisition is as follows:
$$\begin{array} { | l | c | c | } \hline & \begin{array} { c } \text { Book Value } \\\text { Dr (Cr) }\end{array} & \begin{array} { c } \text { Fair Value } \\\text { Dr (Cr) }\end{array} \\\hline \text { Current assets } & \$ 500,000 & \$ 700,000 \\\hline \text { Land, buildings and equipment } \{ \text { net } \} & 2,000,000 & 3,500,000 \\\hline \text { Liabilities } & \{ 600,000 \} & \{ 550,000 \} \\\hline \text { Capital stock } & \{ 500,000 \} & \\\hline \text { Retained earnings } & \{ 1,400,000 \} & \\\hline\end{array}$$ In addition, Springfield Company has unrecorded identifiable intangible assets, in the form of brand names and lease agreements, with a total estimated fair value of $400,000.

-In eliminating entry (R) on the consolidation working paper, the credit to investment is:

A) $1,900,000
B) $2,580,000
C) $3,100,000
D) $3,480,000

Question 41

Use the following information to answer bellow Questions :
Precision Company acquires all of Springfield Company's voting stock for $5,000,000 in cash. Information on Springfield's assets and liabilities at the date of acquisition is as follows:
$$\begin{array} { | l | c | c | } \hline & \begin{array} { c } \text { Book Value } \\\text { Dr (Cr) }\end{array} & \begin{array} { c } \text { Fair Value } \\\text { Dr (Cr) }\end{array} \\\hline \text { Current assets } & \$ 500,000 & \$ 700,000 \\\hline \text { Land, buildings and equipment } \{ \text { net } \} & 2,000,000 & 3,500,000 \\\hline \text { Liabilities } & \{ 600,000 \} & \{ 550,000 \} \\\hline \text { Capital stock } & \{ 500,000 \} & \\\hline \text { Retained earnings } & \{ 1,400,000 \} & \\\hline\end{array}$$ In addition, Springfield Company has unrecorded identifiable intangible assets, in the form of brand names and lease agreements, with a total estimated fair value of $400,000.

-In eliminating entry (R) on the consolidation working paper, the debit to goodwill is:

A) $1,150,000
B) $ 950,000
C) $ 450,000
D) $ 50,000

Question 42

Use the following information to answer bellow Questions :
Precision Company acquires all of Springfield Company's voting stock for $5,000,000 in cash. Information on Springfield's assets and liabilities at the date of acquisition is as follows:
$$\begin{array} { | l | c | c | } \hline & \begin{array} { c } \text { Book Value } \\\text { Dr (Cr) }\end{array} & \begin{array} { c } \text { Fair Value } \\\text { Dr (Cr) }\end{array} \\\hline \text { Current assets } & \$ 500,000 & \$ 700,000 \\\hline \text { Land, buildings and equipment } \{ \text { net } \} & 2,000,000 & 3,500,000 \\\hline \text { Liabilities } & \{ 600,000 \} & \{ 550,000 \} \\\hline \text { Capital stock } & \{ 500,000 \} & \\\hline \text { Retained earnings } & \{ 1,400,000 \} & \\\hline\end{array}$$ In addition, Springfield Company has unrecorded identifiable intangible assets, in the form of brand names and lease agreements, with a total estimated fair value of $400,000.

-In eliminating entry (R) on the consolidation working paper, the debit to identifiable intangibles is:

A) $0
B) $400,000
C) $350,000
D) $250,000

Question 43

Now assume Springfield uses pushdown accounting at the date of acquisition. What amount does it credit to its Pushdown Capital account on its own books?

A) $0
B) $3,100,000
C) $4,400,000
D) $4,500,000

Question 44

Assuming Springfield uses pushdown accounting at the date of acquisition, eliminating entry (E) includes a

A) Debit to retained earnings of $1,400,000.
B) Debit to pushdown capital of $4,500,000.
C) Debit to investment in Springfield of $1,900,000.
D) Debit to current assets of $200,000.

Question 45

Use the following information to answer bellow Questions
DataCloud purchased all of the shares of Supercore for $30 million in cash. The balance sheets of DataCloud and Supercore just after the acquisition appear bellow, along with fair value information for Supercore's net assets.
$\begin{array}{|l|r|r|r|}\hline &\text { DataCloud } & \text { Supercore }\\\hline &\text { Book Value } & \text { Book Value } & \text { Fair value } \\\hline&&\text { Dr (Cr) }\\\hline \text { Current assets } & \$ 10,000,000 & \$ 5,000,000 & \$ 4,000,000 \\\hline \text { Plant assets } & 40,000,000 & 36,000,000 & 25,000,000 \\\hline \text { Identifiable intangible assets } & -- & - & 10,000,000 \\\hline \text { Investment in Supercore } & 30,000,000 & - & -- \\\hline \text { Liabilities } & \{35,000,000\} & \{37,800,000\} & \{37,500,000\} \\\hline \text { Capital stock } & \{30,000,000\} & \{5,000,000\} & \\\hline \text { Retained earnings } & \{15,600,000\} & 1,500,000 & \\\hline \text { Treasury stock } & 100,000 & 100,000 & \\\hline \text { Accumulated other comprehensive loss } & 500,000 & \frac{200,000}{} & \\\hline \text { Total } & \$ & \$ \quad 0 & 0 \\\hline\end{array}$


-On the consolidated balance sheet at the date of acquisition, what is the balance for retained earnings?

A) $14,100,000
B) $17,100,000
C) $15,600,000
D) $0

Question 46

Use the following information to answer bellow Questions
DataCloud purchased all of the shares of Supercore for $30 million in cash. The balance sheets of DataCloud and Supercore just after the acquisition appear bellow, along with fair value information for Supercore's net assets.
$\begin{array}{|l|r|r|r|}\hline &\text { DataCloud } & \text { Supercore }\\\hline &\text { Book Value } & \text { Book Value } & \text { Fair value } \\\hline&&\text { Dr (Cr) }\\\hline \text { Current assets } & \$ 10,000,000 & \$ 5,000,000 & \$ 4,000,000 \\\hline \text { Plant assets } & 40,000,000 & 36,000,000 & 25,000,000 \\\hline \text { Identifiable intangible assets } & -- & - & 10,000,000 \\\hline \text { Investment in Supercore } & 30,000,000 & - & -- \\\hline \text { Liabilities } & \{35,000,000\} & \{37,800,000\} & \{37,500,000\} \\\hline \text { Capital stock } & \{30,000,000\} & \{5,000,000\} & \\\hline \text { Retained earnings } & \{15,600,000\} & 1,500,000 & \\\hline \text { Treasury stock } & 100,000 & 100,000 & \\\hline \text { Accumulated other comprehensive loss } & 500,000 & \frac{200,000}{} & \\\hline \text { Total } & \$ & \$ \quad 0 & 0 \\\hline\end{array}$


-On the consolidated balance sheet at the date of acquisition, what is the balance for goodwill?

A) $25,100,000
B) $28,500,000
C) $29,100,000
D) $24,900,000

Question 47

Use the following information to answer bellow Questions
DataCloud purchased all of the shares of Supercore for $30 million in cash. The balance sheets of DataCloud and Supercore just after the acquisition appear bellow, along with fair value information for Supercore's net assets.
$\begin{array}{|l|r|r|r|}\hline &\text { DataCloud } & \text { Supercore }\\\hline &\text { Book Value } & \text { Book Value } & \text { Fair value } \\\hline&&\text { Dr (Cr) }\\\hline \text { Current assets } & \$ 10,000,000 & \$ 5,000,000 & \$ 4,000,000 \\\hline \text { Plant assets } & 40,000,000 & 36,000,000 & 25,000,000 \\\hline \text { Identifiable intangible assets } & -- & - & 10,000,000 \\\hline \text { Investment in Supercore } & 30,000,000 & - & -- \\\hline \text { Liabilities } & \{35,000,000\} & \{37,800,000\} & \{37,500,000\} \\\hline \text { Capital stock } & \{30,000,000\} & \{5,000,000\} & \\\hline \text { Retained earnings } & \{15,600,000\} & 1,500,000 & \\\hline \text { Treasury stock } & 100,000 & 100,000 & \\\hline \text { Accumulated other comprehensive loss } & 500,000 & \frac{200,000}{} & \\\hline \text { Total } & \$ & \$ \quad 0 & 0 \\\hline\end{array}$


-On the consolidated balance sheet on the date of acquisition, what is the balance for plant assets?

A) $76,000,000
B) $87,000,000
C) $40,000,000
D) $65,000,000

Question 48

Use the following information to answer bellow Questions
DataCloud purchased all of the shares of Supercore for $30 million in cash. The balance sheets of DataCloud and Supercore just after the acquisition appear bellow, along with fair value information for Supercore's net assets.
$\begin{array}{|l|r|r|r|}\hline &\text { DataCloud } & \text { Supercore }\\\hline &\text { Book Value } & \text { Book Value } & \text { Fair value } \\\hline&&\text { Dr (Cr) }\\\hline \text { Current assets } & \$ 10,000,000 & \$ 5,000,000 & \$ 4,000,000 \\\hline \text { Plant assets } & 40,000,000 & 36,000,000 & 25,000,000 \\\hline \text { Identifiable intangible assets } & -- & - & 10,000,000 \\\hline \text { Investment in Supercore } & 30,000,000 & - & -- \\\hline \text { Liabilities } & \{35,000,000\} & \{37,800,000\} & \{37,500,000\} \\\hline \text { Capital stock } & \{30,000,000\} & \{5,000,000\} & \\\hline \text { Retained earnings } & \{15,600,000\} & 1,500,000 & \\\hline \text { Treasury stock } & 100,000 & 100,000 & \\\hline \text { Accumulated other comprehensive loss } & 500,000 & \frac{200,000}{} & \\\hline \text { Total } & \$ & \$ \quad 0 & 0 \\\hline\end{array}$


-On the consolidated balance sheet on the date of acquisition, what is the balance for accumulated other comprehensive loss?

A) $700,000 debit
B) $300,000 debit
C) $500,000 debit
D) $300,000 credit

Question 49

Use the following information to answer bellow Questions:
Pilgrim Corporation acquires all of the stock of Sonic Company for $5,000,000 in cash. Sonic's net assets had a book value of $3,000,000 at the date of acquisition. The book values of Sonic's assets and liabilities approximated fair values, except that Sonic reported inventories at $900,000 more than fair value and plant assets at $2,000,000 more than fair value. In addition, Sonic had unrecorded identifiable intangible assets with an estimated fair value of $5,000,000, appropriately capitalized according to GAAP.

-When recording its investment in Sonic, Pilgrim reports a gain on acquisition in the amount of:

A) $0
B) $ 100,000
C) $1,000,000
D) $3,900,000

Question 50

Use the following information to answer bellow Questions:
Pilgrim Corporation acquires all of the stock of Sonic Company for $5,000,000 in cash. Sonic's net assets had a book value of $3,000,000 at the date of acquisition. The book values of Sonic's assets and liabilities approximated fair values, except that Sonic reported inventories at $900,000 more than fair value and plant assets at $2,000,000 more than fair value. In addition, Sonic had unrecorded identifiable intangible assets with an estimated fair value of $5,000,000, appropriately capitalized according to GAAP.

-Consolidation working paper eliminating entry (R) at the date of acquisition includes a credit to Investment in Sonic in the amount of:

A) $3,000,000
B) $7,900,000
C) $2,100,000
D) $5,000,000

Question 51

Use the following information to answer bellow Questions:
Pilgrim Corporation acquires all of the stock of Sonic Company for $5,000,000 in cash. Sonic's net assets had a book value of $3,000,000 at the date of acquisition. The book values of Sonic's assets and liabilities approximated fair values, except that Sonic reported inventories at $900,000 more than fair value and plant assets at $2,000,000 more than fair value. In addition, Sonic had unrecorded identifiable intangible assets with an estimated fair value of $5,000,000, appropriately capitalized according to GAAP.

-Consolidation working paper eliminating entry (E) at the date of acquisition includes a credit to Investment in Sonic in the amount of:

A) $3,000,000
B) $7,900,000
C) $2,100,000
D) $5,000,000

Question 52

Use the following information to answer bellow Questions:
PVN Corporation acquired all of the stock of SFC Corporation by issuing 1,000,000 shares of no-par stock with a market value of $40 per share. Registration fees were $500,000 and legal fees were $300,000, all paid in cash. SFC's book value at the date of acquisition was $8,000,000. At the date of acquisition, all of SFC's assets and liabilities were reported at amounts approximating fair value, except that its plant and equipment was overvalued by $10,000,000. SFC also had unreported identifiable intangible assets valued at $15,000,000, and unreported warranty liabilities of $4,000,000. A deferred tax liability valued at $2 million was reported in consolidation at the date of acquisition.

-Eliminating entry (R) reduces Investment in SFC by:

A) $32,800,000
B) $32,300,000
C) $32,000,000
D) $40,000,000

Question 53

Use the following information to answer bellow Questions:
PVN Corporation acquired all of the stock of SFC Corporation by issuing 1,000,000 shares of no-par stock with a market value of $40 per share. Registration fees were $500,000 and legal fees were $300,000, all paid in cash. SFC's book value at the date of acquisition was $8,000,000. At the date of acquisition, all of SFC's assets and liabilities were reported at amounts approximating fair value, except that its plant and equipment was overvalued by $10,000,000. SFC also had unreported identifiable intangible assets valued at $15,000,000, and unreported warranty liabilities of $4,000,000. A deferred tax liability valued at $2 million was reported in consolidation at the date of acquisition.

-Eliminating entry (R) debits goodwill for:

A) $29,300,000
B) $41,000,000
C) $21,000,000
D) $33,000,000

Question 54

Use the following information to answer bellow Questions:
PVN Corporation acquired all of the stock of SFC Corporation by issuing 1,000,000 shares of no-par stock with a market value of $40 per share. Registration fees were $500,000 and legal fees were $300,000, all paid in cash. SFC's book value at the date of acquisition was $8,000,000. At the date of acquisition, all of SFC's assets and liabilities were reported at amounts approximating fair value, except that its plant and equipment was overvalued by $10,000,000. SFC also had unreported identifiable intangible assets valued at $15,000,000, and unreported warranty liabilities of $4,000,000. A deferred tax liability valued at $2 million was reported in consolidation at the date of acquisition.

-Eliminating entry (E) reduces Investment in SFC by:

A) $8,000,000
B) $8,300,000
C) $8,800,000
D) $40,300,000

Question 55

Use the following information to answer bellow Questions:
Pacific Inc. acquires all of the voting stock of Skye Company for $300 million in cash. Skye's balance sheet at the date of acquisition is as follows (in millions):
$$\begin{array}{c}\hline{ \text { Skye Company } } \\\begin{array} { | l | r | l | r | } \hline \text { Assets } & & \text { Liabilities \& equity } & \\\hline \text { Current assets } & \$ 75 & \text { Current liabilities } & \$ 80 \\\hline \text { Land, buildings \& equipment, net } & 1,200 & \text { Long-term liabilities } & 1,500 \\\hline & & \text { Capital stock } & 100 \\\hline & & \text { Retained deficit } & ( 400 ) \\\hline & & \begin{array} { l } \text { Accumulated other comprehensive } \\\text { income }\end{array} & 10 \\\hline & & \text { Treasury stock } & ( 15 ) \\\hline \text { Total assets } & \$ 1,275 & \text { Total liabilities \& equity } & \$ 1,275 \\\hline\end{array}\end{array}$$ Skye's land, buildings & equipment have a fair value of $1,000 million. Skye's other assets and liabilities are reported at amounts that approximate fair value. Skye has unreported identifiable intangibles with a fair value of $100 million that meet the criteria for capitalization.

-On the date of acquisition consolidation working paper, what is the effect of eliminating entry (E) on Investment in Skye?

A) Credit of $475 million
B) Credit of $300 million
C) Debit of $305 million
D) Debit of $495 million

Question 56

Use the following information to answer bellow Questions:
Pacific Inc. acquires all of the voting stock of Skye Company for $300 million in cash. Skye's balance sheet at the date of acquisition is as follows (in millions):
$$\begin{array}{c}\hline{ \text { Skye Company } } \\\begin{array} { | l | r | l | r | } \hline \text { Assets } & & \text { Liabilities \& equity } & \\\hline \text { Current assets } & \$ 75 & \text { Current liabilities } & \$ 80 \\\hline \text { Land, buildings \& equipment, net } & 1,200 & \text { Long-term liabilities } & 1,500 \\\hline & & \text { Capital stock } & 100 \\\hline & & \text { Retained deficit } & ( 400 ) \\\hline & & \begin{array} { l } \text { Accumulated other comprehensive } \\\text { income }\end{array} & 10 \\\hline & & \text { Treasury stock } & ( 15 ) \\\hline \text { Total assets } & \$ 1,275 & \text { Total liabilities \& equity } & \$ 1,275 \\\hline\end{array}\end{array}$$ Skye's land, buildings & equipment have a fair value of $1,000 million. Skye's other assets and liabilities are reported at amounts that approximate fair value. Skye has unreported identifiable intangibles with a fair value of $100 million that meet the criteria for capitalization.

-On the date of acquisition consolidation working paper, what is the effect of eliminating entry (R) on Investment in Skye?

A) Debit of $175 million
B) No effect
C) Credit of $605 million
D) Credit of $795 million

Question 57

Use the following information to answer bellow Questions:
Pacific Inc. acquires all of the voting stock of Skye Company for $300 million in cash. Skye's balance sheet at the date of acquisition is as follows (in millions):
$$\begin{array}{c}\hline{ \text { Skye Company } } \\\begin{array} { | l | r | l | r | } \hline \text { Assets } & & \text { Liabilities \& equity } & \\\hline \text { Current assets } & \$ 75 & \text { Current liabilities } & \$ 80 \\\hline \text { Land, buildings \& equipment, net } & 1,200 & \text { Long-term liabilities } & 1,500 \\\hline & & \text { Capital stock } & 100 \\\hline & & \text { Retained deficit } & ( 400 ) \\\hline & & \begin{array} { l } \text { Accumulated other comprehensive } \\\text { income }\end{array} & 10 \\\hline & & \text { Treasury stock } & ( 15 ) \\\hline \text { Total assets } & \$ 1,275 & \text { Total liabilities \& equity } & \$ 1,275 \\\hline\end{array}\end{array}$$ Skye's land, buildings & equipment have a fair value of $1,000 million. Skye's other assets and liabilities are reported at amounts that approximate fair value. Skye has unreported identifiable intangibles with a fair value of $100 million that meet the criteria for capitalization.

-On the date of acquisition consolidation working paper, eliminating entry (R) includes a debit to goodwill in the amount of:

A) $705 million
B) $505 million
C) $415 million
D) $200 million

Question 58

Now assume Skye elects to use pushdown accounting at the date of acquisition. What is its credit to Pushdown Capital, on its own books?

A) $605 million
B) $205 million
C) $215 million
D) $415 million

Question 59

Assuming Skye uses pushdown accounting at the date of acquisition, which statement is true concerning eliminating entry (R) on the consolidation working paper at the date of acquisition?

A) There is no eliminating entry (R).
B) Pushdown capital is credited by $205 million.
C) Investment in Skye is credited by $300 million.
D) Treasury stock is debited by $15 million.

Question 60

Use the following information to answer bellow Questions:
PC Company purchased all of the common stock of Silicon Company by issuing 2,000,000 shares of its $0.50 par value common stock, with a market value of $25/share. PC Company incurred $150,000 in registration and issuing costs, and $100,000 in consulting and legal fees, paid in cash. The book value of Silicon Company at the date of acquisition was as follows:
$\begin{array}{|l|c|}\hline \text { Capital stock. } & \$ 4,000,000 \\\hline \text { Retained deficit } & \{1,500,000\} \\\hline \text { Accumulated other comprehensive income. } & 400,000 \\\hline \text { Total book value } & \$ 2,900,000 \\\hline\end{array}$ The carrying values of Silicon's reported assets and liabilities approximated fair value at the date of acquisition, but it has $3,000,000 in customer lists, not reported on its balance sheet.

-PC's journal entry to record this acquisition includes a credit to additional paid-in capital for:

A) $48,950,000
B) $50,250,000
C) $49,250,000
D) $48,850,000

Question 61

Use the following information to answer bellow Questions:
PC Company purchased all of the common stock of Silicon Company by issuing 2,000,000 shares of its $0.50 par value common stock, with a market value of $25/share. PC Company incurred $150,000 in registration and issuing costs, and $100,000 in consulting and legal fees, paid in cash. The book value of Silicon Company at the date of acquisition was as follows:
$\begin{array}{|l|c|}\hline \text { Capital stock. } & \$ 4,000,000 \\\hline \text { Retained deficit } & \{1,500,000\} \\\hline \text { Accumulated other comprehensive income. } & 400,000 \\\hline \text { Total book value } & \$ 2,900,000 \\\hline\end{array}$ The carrying values of Silicon's reported assets and liabilities approximated fair value at the date of acquisition, but it has $3,000,000 in customer lists, not reported on its balance sheet.

-PC's journal entry to record this acquisition includes a debit to Investment in Silicon for:

A) $50,250,000
B) $50,100,000
C) $50,000,000
D) $49,750,000

Question 62

Use the following information to answer bellow Questions:
PC Company purchased all of the common stock of Silicon Company by issuing 2,000,000 shares of its $0.50 par value common stock, with a market value of $25/share. PC Company incurred $150,000 in registration and issuing costs, and $100,000 in consulting and legal fees, paid in cash. The book value of Silicon Company at the date of acquisition was as follows:
$\begin{array}{|l|c|}\hline \text { Capital stock. } & \$ 4,000,000 \\\hline \text { Retained deficit } & \{1,500,000\} \\\hline \text { Accumulated other comprehensive income. } & 400,000 \\\hline \text { Total book value } & \$ 2,900,000 \\\hline\end{array}$ The carrying values of Silicon's reported assets and liabilities approximated fair value at the date of acquisition, but it has $3,000,000 in customer lists, not reported on its balance sheet.

-Eliminating entry (E) includes:

A) A credit to retained deficit for $1,500,000
B) A debit to customer lists for $3,000,000
C) A credit to accumulated other comprehensive income for $400,000
D) A credit to Investment in Silicon for $2,500,000

Question 63

Use the following information to answer bellow Questions:
PC Company purchased all of the common stock of Silicon Company by issuing 2,000,000 shares of its $0.50 par value common stock, with a market value of $25/share. PC Company incurred $150,000 in registration and issuing costs, and $100,000 in consulting and legal fees, paid in cash. The book value of Silicon Company at the date of acquisition was as follows:
$\begin{array}{|l|c|}\hline \text { Capital stock. } & \$ 4,000,000 \\\hline \text { Retained deficit } & \{1,500,000\} \\\hline \text { Accumulated other comprehensive income. } & 400,000 \\\hline \text { Total book value } & \$ 2,900,000 \\\hline\end{array}$ The carrying values of Silicon's reported assets and liabilities approximated fair value at the date of acquisition, but it has $3,000,000 in customer lists, not reported on its balance sheet.

-Eliminating entry (R) includes a debit to goodwill for:

A) $44,200,000
B) $44,100,000
C) $47,250,000
D) $47,000,000

Question 64

Use the following information to answer bellow Questions:
PC Company purchased all of the common stock of Silicon Company by issuing 2,000,000 shares of its $0.50 par value common stock, with a market value of $25/share. PC Company incurred $150,000 in registration and issuing costs, and $100,000 in consulting and legal fees, paid in cash. The book value of Silicon Company at the date of acquisition was as follows:
$\begin{array}{|l|c|}\hline \text { Capital stock. } & \$ 4,000,000 \\\hline \text { Retained deficit } & \{1,500,000\} \\\hline \text { Accumulated other comprehensive income. } & 400,000 \\\hline \text { Total book value } & \$ 2,900,000 \\\hline\end{array}$ The carrying values of Silicon's reported assets and liabilities approximated fair value at the date of acquisition, but it has $3,000,000 in customer lists, not reported on its balance sheet.

-Eliminating entry (R) includes a credit to Investment in Silicon for:

A) $47,100,000
B) $47,350,000
C) $46,750,000
D) $48,000,000

Question 65

A parent acquires all of the voting stock of a subsidiary. The acquisition cost of $8 million is $1 million less than the fair value of the subsidiary's identifiable net assets, and $0.8 million less than the subsidiary's book value.
Which statement below is true concerning the consolidation working paper eliminating entries at the date of acquisition?

A) Eliminating entry (R) credits gain on acquisition for $1 million.
B) Eliminating entry (R) debits identifiable net assets for $200,000.
C) Eliminating entry (E) credits Investment in Subsidiary for $8 million.
D) Eliminating entry (R) credits Investment in Subsidiary for $1 million.

Question 66

The FASB issued a 2014 ASU that clarifies use of pushdown accounting. Which statement is true concerning this update?

A) An acquired company is required to use pushdown accounting.
B) An acquiring company has the option to use pushdown accounting at the date of acquisition.
C) An acquiring company can delay adoption of pushdown accounting to a date later than the date of acquisition.
D) If pushdown accounting is elected, the decision is irrevocable.

Question 67

If a subsidiary uses pushdown accounting, what is the effect on consolidation eliminating entries at the date of acquisition?

A) No effect
B) It is not necessary to eliminate the subsidiary's equity accounts.
C) It is not necessary to revalue the subsidiary's net assets to fair value.
D) An additional entry is required to reverse the pushdown accounting entry.

Question 68

A company may use pushdown accounting to revalue its assets and liabilities to fair value when

A) The fair values of its assets are significantly different from book value.
B) It gains control of another company through a business acquisition.
C) Its book value is negative.
D) Another company obtains control over it through a business acquisition.

Question 69

Pivot pays $25,000,000 for all the voting stock of Sand. Sand's equity accounts consist of capital stock of $2,000,000, retained earnings of $1,500,000, and accumulated other comprehensive income of $100,000. If Sand uses pushdown accounting, it credits Pushdown Capital in the amount of

A) $24,500,000
B) $23,000,000
C) $24,600,000
D) $21,400,000

Question 70

Use the following information to answer bellow Questions:
Salsa Company's equity accounts consist of capital stock of $1,500,000 and retained earnings of $500,000. Prance Company pays $8,000,000 for all the voting stock of Salsa Company. The fair value of Salsa's identifiable net assets is $3,500,000 higher than book value.

-If Salsa uses pushdown accounting, Salsa's entry to record the acquisition includes

A) No changes in its equity accounts.
B) A $6,000,000 debit to goodwill.
C) A $1,500,000 debit to capital stock.
D) A $500,000 debit to retained earnings.

Question 71

Use the following information to answer bellow Questions:
Salsa Company's equity accounts consist of capital stock of $1,500,000 and retained earnings of $500,000. Prance Company pays $8,000,000 for all the voting stock of Salsa Company. The fair value of Salsa's identifiable net assets is $3,500,000 higher than book value.

-If Salsa uses pushdown accounting, what is Salsa's credit to Pushdown Capital?

A) $5,500,000
B) $6,500,000
C) $6,000,000
D) $3,500,000

Question 72

Salsa Company's equity accounts consist of capital stock of $1,500,000 and retained earnings of $500,000. Prance Company pays $8,000,000 for all the voting stock of Salsa Company. The fair value of Salsa's identifiable net assets is $6,200,000 greater than book value. Salsa uses pushdown accounting to revalue its net assets at the date of acquisition. Eliminating entry (E) on the consolidation working paper includes

A) A $500,000 debit to retained earnings.
B) A $500,000 credit to retained earnings.
C) A $6,000,000 debit to pushdown capital.
D) A $6,700,000 debit to pushdown capital.

Question 73

IFRS 10, Consolidated Financial Statements

A) Provides a measurable set of criteria for consolidation, based on the level of equity ownership.
B) Requires joint ventures to be consolidated with the investor's financial statements.
C) Converges IFRS with U.S. GAAP by requiring the same measure of control now required by U.S. GAAP.
D) Provides a single model for assessing control that is applicable to all investor-investee relationships.

Question 74

Buttenhaus, a German company that reports using IFRS, owns 45% of the voting stock of Zeta. Buttenhaus should consolidate Zeta's accounts with its own in its annual report, per IFRS 10

A) Never
B) Buttenhaus has power over Zeta.
C) If Buttenhaus significantly influences Zeta's returns.
D) If Buttenhaus is Zeta's primary beneficiary.

Question 75

Buttenhaus, a German company that reports using IFRS, has a financial relationship with Zeta, but does not own any of its voting stock. When should Buttenhaus consolidate Zeta's accounts with its own in its annual report?

A) Never
B) If Zeta is a variable interest entity and a special purpose entity, Buttenhaus should consolidate it.
C) If Zeta is a variable interest entity and Buttenhaus is its primary beneficiary, Buttenhaus should consolidate it.
D) If Buttenhaus controls Zeta's operations, Buttenhaus should consolidate it.

Question 76

Lidi uses IFRS, has a financial relationship with Zeta, but does not own any of its voting stock. When should Lidi consolidate Zeta's accounts with its own in its annual report?

A) When Lidi controls Zeta
B) When Lidi is Zeta's primary beneficiary
C) When Zeta is a variable interest entity
D) When Lidi buys Zeta's stock

Question 77

According to IFRS, the financial statements of two legal entities should be presented on a consolidated basis if:

A) One company owns a majority of the voting stock of the other company
B) One company has decision making control over the other company
C) One company is a major supplier of the other company
D) One company is a spinoff of the other company

Question 78

What is the difference between U.S. GAAP and IFRS in consolidation policy for special purpose entities?

A) U.S. GAAP requires identification of an SPE as a variable interest entity, and then requires consolidation by the company that is the primary beneficiary of the VIE. IFRS applies the concept of control to all entities, regardless of whether they are VIEs.
B) IFRS requires identification of an SPE as a variable interest entity, and then requires consolidation by the company that is the primary beneficiary of the VIE. U.S. GAAP applies the concept of control to all entities, regardless of whether they are VIEs.
C) U.S. GAAP requires majority ownership of the stock of the SPE for consolidation, while IFRS applies the concept of control to all entities.
D) IFRS requires majority ownership of the stock of the SPE for consolidation, while U.S. GAAP applies the concept of control to all entities.

Question 79

Which statement is true concerning IFRS for consolidations?

A) U.S. GAAP and IFRS standards for consolidation are the same.
B) U.S. GAAP specifies different consolidation standards for special purpose entities versus equity investments, while IFRS has the same standards for all entities.
C) IFRS specifies different consolidation standards for special purpose entities versus equity investments, while U.S. GAAP has the same standards for all entities.
D) U.S. GAAP always requires consolidation of special purpose entities, while IFRS never requires consolidation of special purpose entities.

Question 80

IFRS specifies all the following characteristics as required for consolidation of an investee, per IFRS 10, except:

A) Power over the investee
B) Exposure or rights to the investee's variable returns
C) Ability to use power over the investee to influence the amount of returns to the investor
D) Majority control of the investee's board of directors