Deck 2: Consolidated Statements: Date of Acquisition

Question 1

An investor receives dividends from its investee and records those dividends as dividend income because:

A)​The investor has a controlling interest in its investee.
B)​The investor has a passive interest in its investee.
C)​The investor has an influential interest in its investee.
D)​The investor has an active interest in its investee.

Answer 1

B

Question 2

On April 1, 2016, Paape Company paid $950,000 for all the issued and outstanding stock of Simon Corporation.The recorded assets and liabilities of the Simon Corporation on April 1, 2016, follow:
$$\begin{array} { l r } \text { Cash } & \$ 80,000 \\\text { Inventory } & 240,000 \\\text { Property and equipment (net of accumulated depreciation of } \$ 320,000 ) & 480,000 \\\text { Liabilities } & ( 180,000 )\end{array}$$ On April 1, 2016, it was determined that the inventory of Simon had a fair value of $190,000, and the property and equipment (net) had a fair value of $560,000.What is the amount of goodwill resulting from the business combination?

A)$0
B)$120,000
C)$300,000
D)$230,000

Answer 2

$300,000

Question 3

Which of the following is true of the consolidation process?

A)​Even though the initial accounting for asset acquisitions and 100% stock acquisitions differs, the consolidation process should result in the same balance sheet.
B)​Account balances are combined when recording a stock acquisition so the consolidation is automatic.
C)​The assets of the non-controlling interest will be predominately displayed on the consolidated balance sheet.
D)​The investment in subsidiary account will be displayed on the consolidated balance sheet.

Answer 3

A

Question 4

A subsidiary was acquired for cash in a business combination on December 31, 2016.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, 2016, 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.

Question 5

On April 1, 2016, Paape Company paid $950,000 for all the issued and outstanding stock of Simon Corporation.The recorded assets and liabilities of the Simon Corporation on April 1, 2016, follow:
$$\begin{array} { l r } \text { Cash } & \$ 80,000 \\\text { Inventory } & 240,000 \\\text { Property and equipment (net of accumulated depreciation of } \$ 320,000 ) & 480,000 \\\text { Liabilities } & ( 180,000 )\end{array}$$ On April 1, 2016, it was determined that the inventory of Simon had a fair value of $190,000, and the property and equipment (net) had a fair value of $560,000.The entry to distribute the excess of fair value over book value will include:

A)A debit to inventory of $50,000
B)A credit to the investment in Simon Corporation of $620,000
C)A debit to goodwill of $330,000
D)A credit to the investment in Simon Corporation of $330,000

Question 6

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 manner for creditors.
C)​the results of operations, cash flow, and the balance sheet as if the parent and subsidiary were a single entity.
D)​subsidiary information for the subsidiary shareholders.

Question 7

Pinehollow acquired all of the outstanding stock of Stonebriar by issuing 100,000 shares of its $1 par value stock.The shares have a fair value of $15 per share.Pinehollow also paid $25,000 in direct acquisition costs.Prior to the transaction, the companies have the following balance sheets:
$\begin{array}{lrr}\text { Assets } &\text { Pinehollow } & \text { Stonebriar }\\\text { Cash } & \$ 150,000 & \$ 50,000 \\\text { Accounts receivable } & 500,000 & 350,000 \\\text { Inventory } & 900,000 & 600,000 \\\text { Property, plant, and equipment (net) } & \underline{1,850,000} & 900,000 \\\text { Total assets } & \$ 3,400,000 & \$ 1,900,000\\\\\text { Liabilities and Stockholders' Equity }\\ \text { Current liabilities } & \$ 300,000 & \$ 100,000 \\\text { Bonds payable } & 1,000,000 & 600,000 \\\text { Common stock ( } \$ 1 \text { par) } & 300,000 & 100,000 \\\text { Paid-in capital in excess of par } & 800,000 & 900,000 \\\text { Retained earnings } & \underline{1,000,000} & \underline{200,000} \\\text { Total liabilities and equity } & \$ 3,400,000 & \$ 1,900,000\end{array}$ The fair values of Stonebriar's inventory and plant, property and equipment are $700,000 and $1,000,000, respectively.The journal entry to record the purchase of Stonebriar would include a

A)credit to common stock for $1,500,000.
B)credit to paid-in capital in excess of par for $1,100,000.
C)debit to investment for $1,500,000.
D)debit to investment for $1,525,000.

Question 8

Which of the following is not true of the consolidation process for a stock acquisition?

A)​Journal entries for the elimination process are made to the parent's or subsidiary's books.
B)​The investment account balance on the parent's books will be eliminated.
C)​The balance sheets of two companies are combined into a single balance sheet.
D)​The shareholder equity accounts of the subsidiary are eliminated.

Question 9

Which of the following is not an advantage of the parent issuing shares of stock in exchange for the subsidiary common shares being acquired?

A)​It is not necessary to determine the fair values of the subsidiary's net assets.
B)​It may allow the subsidiary's shareholders to have a tax free exchange.
C)​It avoids the depletion of cash.
D)​If the parent is publicly held, the share price is readily determinable.

Question 10

Pinehollow acquired all of the outstanding stock of Stonebriar by issuing 100,000 shares of its $1 par value stock.The shares have a fair value of $15 per share.Pinehollow also paid $25,000 in direct acquisition costs.Prior to the transaction, the companies have the following balance sheets:
$\begin{array}{lrr}\text { Assets } &\text { Pinehollow } & \text { Stonebriar }\\\text { Cash } & \$ 150,000 & \$ 50,000 \\\text { Accounts receivable } & 500,000 & 350,000 \\\text { Inventory } & 900,000 & 600,000 \\\text { Property, plant, and equipment (net) } & \underline{1,850,000} & 900,000 \\\text { Total assets } & \$ 3,400,000 & \$ 1,900,000\\\\\text { Liabilities and Stockholders' Equity }\\ \text { Current liabilities } & \$ 300,000 & \$ 100,000 \\\text { Bonds payable } & 1,000,000 & 600,000 \\\text { Common stock ( } \$ 1 \text { par) } & 300,000 & 100,000 \\\text { Paid-in capital in excess of par } & 800,000 & 900,000 \\\text { Retained earnings } & \underline{1,000,000} & \underline{200,000} \\\text { Total liabilities and equity } & \$ 3,400,000 & \$ 1,900,000\end{array}$
The fair values of Stonebriar's inventory and plant, property and equipment are $700,000 and $1,000,000, respectively.What is the amount of goodwill that will be included in the consolidated balance sheet immediately following the acquisition?

A)$100,000
B)$125,000
C)$300,000
D)$325,000

Question 11

Which of the following statements about consolidation is not true?

A)​Consolidation is not required when control is temporary.
B)​Consolidation may be appropriate in some circumstances when an investor owns less than 51% of the voting common stock.
C)​Consolidation is not required when a subsidiary's operations are not homogeneous with those of its parent.
D)​Unprofitable subsidiaries may not be obvious when combined with other entities in consolidation.

Question 12

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 pertaining to Super Company are available:
$\begin{array}{lrr}& \text { Book Value } & \text { Fair Value } \\\text { Current assets } & \$ 300,000 & \$ 600,000 \\\text { Land and building } & 600,000 & 900,000 \\\text { Machinery } & 500,000 & 600,000 \\\text { Goodwill } & 100,000 & ?\end{array}$
The amount of machinery that will be included in on the consolidated balance sheet is:

A)$560,000
B)$860,000
C)$600,000
D)$900,000

Question 13

Consolidation might not be appropriate even when the majority owner has control if:

A)​The subsidiary is in bankruptcy.
B)​A manufacturing-based parent has a subsidiary involved in banking activities.
C)​The subsidiary is located in a foreign country.
D)​The subsidiary has a different fiscal-year end than the parent.

Question 14

An investor prepares a single set of financial statements which encompasses the financial results for both it and its investee because:

A)​The investor has a controlling interest in its investee.
B)​The investor has a passive interest in its investee.
C)​The investor has an influential interest in its investee.
D)​The investor has an active interest in its investee.

Question 15

In an asset acquisition:

A)​A consolidation must be prepared whenever financial statements are issued.
B)​The acquiring company deals only with existing shareholders, not the company itself.
C)​The assets and liabilities are recorded by the acquiring company at their book values.
D)​Statements for the single combined entity are produced automatically and no consolidation process is needed.

Question 16

Consolidated financial statements are appropriate even without a majority ownership if which of the following exists:

A)​the subsidiary has the right to appoint members 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 because other ownership interests are widely dispersed.
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.

Question 17

Pagach Company purchased 100% of the voting common stock of Rage Company for $1,800,000.The following book and fair values are available:
$\begin{array}{lrr}& \text { Book Value } & \text { Fair Value } \\\text { Current assets } & \$ 150,000 & \$ 300,000 \\\text { Land and building } & 280,000 & 280,000 \\\text { Machinery } & 400,000 & 700,000 \\\text { Bonds payable } & (300,000) & (250,000) \\\text { Goodwill } & 150,000 & ?\end{array}$
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)at an amount less than $250,000 since it is a bargain purchase.

Question 18

When it purchased Sutton, Inc.on January 1, 2016, 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:
$\begin{array}{lrr}& \underline { \text { Pavin } } & \text { Sutton } \\\text { Common stock } & \$ 4,000,000 & \$ 700,000 \\\text { Paid-in capital in excess of par } & 7,500,000 & 900,000 \\\text { Retained earnings } & 5,500,000 & 500,000 \\\text { Total } & \$ 17,000,000 & \$ 2,100,000 \\\end{array}$
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

Question 19

An investor records its share of its investee's income as a separate source of income because:

A)​The investor has a controlling interest in its investee.
B)​The investor has a passive interest in its investee.
C)​The investor has an influential interest in its investee.
D)​The investor has an active interest in its investee.

Question 20

When it purchased Sutton, Inc.on January 1, 2016, 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:
$\begin{array}{lrr} & \underline { \text { Pavin } } & \text { Sutton } \\\text { Common stock } & \$ 4,000,000 & \$ 700,000 \\\text { Paid-in capital in excess of par } & 7,500,000 & 900,000 \\\text { Retained earnings } & 5,500,000 & 500,000 \\\text { Total } & \$ 17,000,000 & \$ 2,100,000\end{array}$
Immediately after the purchase, the consolidated balance sheet should report retained earnings of:

A)$6,000,000
B)$5,800,000
C)$5,500,000
D)$5,300,000

Question 21

Fortuna Company issued 70,000 shares of $1 par stock, with a fair value of $20 per share, for 80% of the outstanding shares of Acappella Company.The firms had the following separate balance sheets prior to the acquisition:
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Book values equal fair values for the assets and liabilities of Acappella Company, except for the property, plant, and equipment, which has a fair value of $1,600,000.
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Required:
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a.Prepare a value analysis schedule
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b.Prepare a determination and distribution of excess schedule.?
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c.Provide all eliminations on the partial balance sheet worksheet provided in Figure 2-9 and complete the non-controlling interest column.?
Figure 2-9
Fortuna Co.and Subsidiary Acappella Co.Partial Worksheet for Consolidated Financial Statements
January 2, 2016
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Balance Sheet
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Account Titles
Fortuna
Acappella
Current Assets
2,100,000
960,000
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?
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Property, Plant, and
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Equipment
4,600,000
1,300,000
Investment in Acappella
1,400,000
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?
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Goodwill
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240,000
Liabilities
(3,000,000)
(800,000)
Common Stock - Fortuna
(870,000)
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Paid-in Capital in Excess
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of Par - Fortuna
(3,530,000)
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Retained Earnings - Fortuna
(700,000)
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Common Stock - Acappella
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(200,000)
Paid-in Capital in Excess
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of Par - Acappella
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(300,000)
Retained Earnings - Acappella
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(1,200,000)
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?

Question 22

Pinehollow acquired 70% of the outstanding stock of Stonebriar by issuing 70,000 shares of its $1 par value stock.The shares have a fair value of $15 per share.Pinehollow also paid $25,000 in direct acquisition costs.Prior to the transaction, the companies have the following balance sheets:
$\begin{array}{lrr}\text { Assets } &\text { Pinehollow } & \text { Stonebriar }\\\text { Cash } & \$ 150,000 & \$ 50,000 \\\text { Accounts receivable } & 500,000 & 350,000 \\\text { Inventory } & 900,000 & 600,000 \\\text { Property, plant, and equipment (net) } & \underline{1,850,000} & 900,000 \\\text { Total assets } & \$ 3,400,000 & \$ 1,900,000\\\\\text { Liabilities and Stockholders' Equity }\\ \text { Current liabilities } & \$ 300,000 & \$ 100,000 \\\text { Bonds payable } & 1,000,000 & 600,000 \\\text { Common stock ( } \$ 1 \text { par) } & 300,000 & 100,000 \\\text { Paid-in capital in excess of par } & 800,000 & 900,000 \\\text { Retained earnings } & \underline{1,000,000} & \underline{200,000} \\\text { Total liabilities and equity } & \$ 3,400,000 & \$ 1,900,000\end{array}$

The fair values of Stonebriar's inventory and plant, property and equipment are $700,000 and $1,000,000, respectively.What is the amount of the non-controlling interest that will be included in the consolidated balance sheet immediately after the acquisition

A)$450,000
B)$360,000
C)$315,000
D)$420,000

Question 23

On January 1, 2016, Parent Company purchased 90% of the common stock of Subsidiary Company for $252,000.On this date, Subsidiary had total owners' equity of $240,000 consisting of $50,000 in common stock, $70,000 additional paid-in capital, and $120,000 in retained earnings.
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On January 1, 2016, the excess of cost over book value is due to a $15,000 undervaluation of inventory, to a $5,000 overvaluation of Bonds Payable, and to an undervaluation of land, building and equipment.The fair value of land is $50,000.The fair value of building and equipment is $200,000.The book value of the land is $30,000.The book value of the building and equipment is $180,000.
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Required:
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a.Complete the valuation analysis schedule for this combination.?
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b.Complete the determination and distribution schedule for this combination.?
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c.Prepare, in general journal form, the elimination entries required to prepare a consolidated balance sheet for Parent and Subsidiary on January 1, 2016.

Question 24

How is the non-controlling interest treated in the consolidated balance sheet?

A)​It is included in long-term liabilities.
B)​It appears between the liability and equity sections of the balance sheet.
C)​It is included in total as a component of shareholders' equity.
D)​It is included in shareholders' equity and broken down into par, paid-in capital in excess of par and retained earnings.

Question 25

On December 31, 2016, Priority Company purchased 80% of the common stock of Subsidiary Company for $1,550,000.On this date, Subsidiary had total owners' equity of $650,000 (common stock $100,000; other paid-in capital, $200,000; and retained earnings, $350,000).Any excess of cost over book value is due to the under or overvaluation of certain assets and liabilities.Assets and liabilities with differences in book and fair values are provided in the following table:
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$\begin{array}{lrr}& \text { Book } & \text { Fair } \\& \text { Value } & \text { Value } \\\text { Current assets } & \$ 500,000 & \$ 800,000 \\\text { Accounts receivable } & 200,000 & 150,000 \\\text { Inventory } & 800,000 & 800,000 \\\text { Land } & 100,000 & 600,000 \\\text { Buildings and equipment, net } & 700,000 & 900,000 \\\text { Current liabilities } & 800,000 & 875,000 \\\text { Bonds payable } & 850,000 & 930,000\end{array}$
Remaining excess, if any, is due to goodwill.
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Required:
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a.Using the information above and on the separate worksheet, prepare a schedule to determine and distribute the excess of cost over book value.?
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b.Complete the Figure 2-3 worksheet for a consolidated balance sheet as of December 31, 2016.?
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Question 26

Pinehollow acquired 80% of the outstanding stock of Stonebriar by issuing 80,000 shares of its $1 par value stock.The shares have a fair value of $15 per share.Pinehollow also paid $25,000 in direct acquisition costs.Prior to the transaction, the companies have the following balance sheets: ?
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$\begin{array}{lrr}\text { Assets } &\text { Pinehollow } & \text { Stonebriar }\\\text { Cash } & \$ 150,000 & \$ 50,000 \\\text { Accounts receivable } & 500,000 & 350,000 \\\text { Inventory } & 900,000 & 600,000 \\\text { Property, plant, and equipment (net) } & \underline{1,850,000} & 900,000 \\\text { Total assets } & \$ 3,400,000 & \$ 1,900,000\\\\\text { Liabilities and Stockholders' Equity }\\ \text { Current liabilities } & \$ 300,000 & \$ 100,000 \\\text { Bonds payable } & 1,000,000 & 600,000 \\\text { Common stock ( } \$ 1 \text { par) } & 300,000 & 100,000 \\\text { Paid-in capital in excess of par } & 800,000 & 900,000 \\\text { Retained earnings } & \underline{1,000,000} & \underline{200,000} \\\text { Total liabilities and equity } & \$ 3,400,000 & \$ 1,900,000\end{array}$
The fair values of Stonebriar's inventory and plant, property and equipment are $700,000 and $1,000,000, respectively.What is the amount of goodwill that will be included in the consolidated balance sheet immediately following the acquisition?

A)$300,000
B)$100,000
C)$200,000
D)$240,000

Question 27

On January 1, 2016, Parent Company purchased 100% of the common stock of Subsidiary Company for $280,000.On this date, Subsidiary had total owners' equity of $240,000.
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On January 1, 2016, the excess of cost over book value is due to a $15,000 undervaluation of inventory, to a $5,000 overvaluation of Bonds Payable, and to an undervaluation of land, building and equipment.The fair value of land is $50,000.The fair value of building and equipment is $200,000.The book value of the land is $30,000.The book value of the building and equipment is $180,000.
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Required:
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a.Using the information above and on the separate worksheet, complete a value analysis schedule
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b.Complete schedule for determination and distribution of the excess of cost over book value.?
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c.Complete the Figure 2-5 worksheet for a consolidated balance sheet as of January 1, 2016.?
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Question 28

The SEC requires the use of push-down accounting in some specific situations.Push-down accounting results in:

A)​goodwill be recorded in the parent company separate accounts.
B)​eliminating subsidiary retained earnings and paid-in capital in excess of par.
C)​reflecting fair values on the subsidiary's separate accounts.
D)​changing the consolidation worksheet procedure because no adjustment is necessary to eliminate the investment in subsidiary account.

Question 29

Pesto Company paid $8 per share to acquire 80% of Sauce Company's 100,000 outstanding shares.The fair value of Sauce's net assets at the time of the acquisition was $850,000.In this case:

A)​The total value assigned to the NCI at the date of the acquisition may be less than the NCI percentage of the fair value of the net assets.
B)​Goodwill will be recognized by Pesto.
C)​Pesto and the NCI would both recognize a gain on the acquisition.
D)​Pesto only would recognize a gain on the acquisition.

Question 30

Supernova Company had the following summarized balance sheet on December 31 of the current year:
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$\begin{array}{lr}\text { Assets }\\\text { Accounts receivable } & \$ 350,000 \\\text { Inventory } & 450,000 \\\text { Property and plant (net) } & \$ \underline{600,000} \\\quad \text { Total } & \$ \underline{1,400,000}\\\\\text { Liabilities and Equity }\\ \text { Notes payable } & \$ 600,000 \\\text { Common stock, } \$ 5 \text { par } & 300,000 \\\text { Paid-in capital in excess of par } & 400,000 \\\text { Retained earnings } & 100,000 \\\quad \text { Total } & \$ \underline{1,400,000}\end{array}$
The fair value of the inventory and property and plant is $600,000 and $850,000, respectively.
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Assume that Redstar Corporation exchanges 75,000 of its $3 par value shares of common stock, when the fair price is $20 per share, for 100% of the common stock of Supernova Company.Redstar incurred acquisition costs of $5,000 and stock issuance costs of $5,000.
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Required:
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a.What journal entries will Redstar Corporation record for the investment in Supernova and issuance of stock?
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b.Prepare a supporting value analysis and determination and distribution of excess schedule
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c.Prepare Redstar's elimination and adjustment entry for the acquisition of Supernova.

Question 31

Supernova Company had the following summarized balance sheet on December 31, 20X1:
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The fair value of the inventory and property and plant is $600,000 and $850,000, respectively.
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Required:
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a.Assume that Redstar Corporation purchases 100% of the common stock of Supernova Company for $1,800,000.What value will be assigned to the following accounts of the Supernova Company when preparing a consolidated balance sheet on December 31, 2016?
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(1)
Inventory
_________
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(2)
Property and plant
_________
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(3)
Goodwill
_________
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(4)
Non-controlling interest
_________
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b.Prepare a valuation schedule
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c.Prepare a supporting determination and distribution of excess schedule.?

Question 32

Supernova Company had the following summarized balance sheet on December 31 of the current year:
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$\begin{array}{lr}\text { Assets }\\\text { Accounts receivable } & \$ 200,000 \\\text { Inventory } & 450,000 \\\text { Property and plant (net) } & 600,000 \\\text { Goodwill } & \underline{150,000} \\\quad \text { Total } & \$ \underline{1,400,000}\\\\\text {Liabilities and Equity}\\\text { Notes payable } & \$ 600,000 \\\text { Common stock, } \$ 5 \text { par } & 300,000 \\\text { Paid-in capital in excess of par } & 400,000 \\\text { Retained earnings } & 100,000 \\\quad \text { Total } & \$ 1,400,000\end{array}$ The fair value of the inventory and property and plant is $600,000 and $850,000, respectively.
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Assume that Redstar Corporation exchanges 75,000 of its $3 par value shares of common stock, when the fair price is $20 per share, for 100% of the common stock of Supernova Company.Redstar incurred acquisition costs of $5,000 and stock issuance costs of $5,000.
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Required:
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a.What journal entries will Redstar Corporation record for the investment in Supernova and issuance of stock?
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b.Prepare a supporting value analysis and determination and distribution of excess schedule
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c.Prepare Redstar's elimination and adjustment entry for the acquisition of Supernova.

Question 33

Pinehollow acquired all of the outstanding stock of Stonebriar by issuing 100,000 shares of its $1 par value stock.The shares have a fair value of $15 per share.Pinehollow also paid $25,000 in direct acquisition costs.Prior to the transaction, the companies have the following balance sheets:
$\begin{array}{lrr}\text { Assets } &\text { Pinehollow } & \text { Stonebriar }\\\text { Cash } & \$ 150,000 & \$ 50,000 \\\text { Accounts receivable } & 500,000 & 350,000 \\\text { Inventory } & 900,000 & 600,000 \\\text { Property, plant, and equipment (net) } & \underline{1,850,000} & 900,000 \\\text { Total assets } & \$ 3,400,000 & \$ 1,900,000\\\\\text { Liabilities and Stockholders' Equity }\\ \text { Current liabilities } & \$ 300,000 & \$ 100,000 \\\text { Bonds payable } & 1,000,000 & 600,000 \\\text { Common stock ( } \$ 1 \text { par) } & 300,000 & 100,000 \\\text { Paid-in capital in excess of par } & 800,000 & 900,000 \\\text { Retained earnings } & \underline{1,000,000} & \underline{200,000} \\\text { Total liabilities and equity } & \$ 3,400,000 & \$ 1,900,000\end{array}$

The fair values of Stonebriar's inventory and plant, property and equipment are $700,000 and $1,000,000, respectively.What is the amount of property, plant and equipment that will be included in the consolidated balance sheet immediately after the acquisition?

A)$2,570,000
B)$2,750,000
C)$2,850,000
D)$2,650,000

Question 34

Paro Company purchased 80% of the voting common stock of Sabon Company for $900,000.There are no liabilities.The following book and fair values are available for Sabon:
$\begin{array}{lrr}& \text { Book Value } & \text { Fair Value } \\\text { Current assets } & \$ 100,000 & \$ 200,000 \\\text { Land and building } & 200,000 & 200,000 \\\text { Machinery } & 300,000 & 600,000 \\\text { Goodwill } & 100,000 & ? \end{array}$

The machinery will appear on the consolidated balance sheet at ____.

A)$600,000
B)$540,000
C)$480,000
D)$300,000

Question 35

When a company purchases another company that has existing goodwill and the transaction is accounted for as a stock acquisition, the goodwill should be treated in the following manner:

A)​The goodwill on the books of an acquired company should be written off.
B)​Goodwill is recorded prior to recording fixed assets.
C)​The fair value of the goodwill is ignored in the calculation of goodwill of the new acquisition.
D)​Goodwill is treated in a manner consistent with tangible assets.

Question 36

On December 31, 2016, Parent Company purchased 80% of the common stock of Subsidiary Company for $280,000.On this date, Subsidiary had total owners' equity of $250,000 (common stock $20,000; other paid-in capital, $80,000; and retained earnings, $150,000).Any excess of cost over book value is due to the under or overvaluation of certain assets and liabilities.Inventory is undervalued $5,000.Land is undervalued $20,000.Buildings and equipment have a fair value which exceeds book value by $30,000.Bonds payable are overvalued $5,000.The remaining excess, if any, is due to goodwill.
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Required:
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a.Prepare a value analysis schedule for this business combination.?
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b.Prepare the determination and distribution schedule for this business combination
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c.Prepare the necessary elimination entries in general journal form.

Question 37

Pesto Company paid $10 per share to acquire 80% of Sauce Company's 100,000 outstanding shares; however the market price of the remaining shares was $8.50.The fair value of Sauce's net assets at the time of the acquisition was $850,000.In this case, where Pesto paid a premium to achieve control:

A)​The total value assigned to the NCI at the date of the acquisition may be less than the NCI percentage of the fair value of the net assets.
B)​Goodwill is assigned 80% to Pesto and 20% to the NCI.
C)​The NCI share of goodwill would be reduced to zero.
D)​Pesto would recognize a gain on the acquisition.

Question 38

Mans Company is about to purchase the net assets of Eagle Inc., which has the following balance sheet:
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Mans has secured the following fair values of Eagle's accounts:
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$$\begin{array} { l r } \text { Inventory } & \$ 130,000 \\\text { Equipment } & 60,000 \\\text { Land and buildings } & 260,000 \\\text { Bonds payable } & 60,000\end{array}$$ Acquisition costs were $20,000.
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Required:
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Record the entry for the purchase of the net assets of Eagle by Mans at the following cash prices:
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a.$450,000
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b.$310,000
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c.$480,000
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Question 39

The following consolidated financial statement was prepared immediately following the acquisition of Salt, Inc.by Pepper Co.
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Question 40

On June 30, 2016, 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, 2016, should report

A)​a retained earnings balance that is inclusive of a gain of $400,000.
B)​goodwill of $400,000.
C)​a retained earnings balance that is inclusive of a gain of $350,000.
D)​a gain of $400,000

Question 41

When there is a consolidation with a noncontrolling interest, the following is true with respect to what can happen with less than a 100% ownership interest consolidation EXCEPT FOR:
Subsidiary accounts are adjusted to partial fair value based on the controlling interest percentage.
The entire amount of every subsidiary nominal account is merged with the nominal accounts of the parent to calculate consolidated income.
The parent's investment account is eliminated against only its ownership percentage of the underlying subsidiary equity accounts.
All of the above are true

Question 42

Discuss the conditions under which the SEC would assume a presumption of control.Additionally, under what circumstances might consolidation be required even though the parent does not control the subsidiary?
When would it not be appropriate to consolidate when more than 50% of the voting stock is held?

Question 43

A parent company purchases an 80% interest in a subsidiary at a price high enough to revalue all assets and allow for goodwill on the interest purchased.If "push down accounting" were used in conjunction with the "economic entity concept," what unique procedures would be used?

Question 44

Exercise
Assume that Organic Food, Inc.issued 10,000 shares of its $5 par value common stock for 100% of the outstanding shares of JMJ Meats Company.The fair value of a share of the Organic stock is $15.Organic Food, Inc.also paid $12,000 in accounting and legal fees to complete the purchase.Make the necessary entry that Organic Food, Inc.would make to record the purchase including the entry to record the costs of the acquisition.