Question 1

LaFevor Co. acquired 70% of the common stock of Dean Corp. on August 1, 2022. For 2022, Dean reported revenues of $960,000 and expenses of $780,000, all reflected evenly throughout the year. The annual amount of amortization related to this acquisition was $21,000.In consolidation, the total amount of expenses related to Dean, and to LaFevor's acquisition of Dean, for 2022 is determined to be
A) $180,000.
B) $234,000.
C) $325,000.
D) $333,750.
E) $546,000.

Accepted Answer

The total expenses related to Dean for 2022 include Dean's expenses from the acquisition date (August 1) to year-end, plus the annual amortization. Dean's expenses for the year are $780,000, so for 5 months (August to December), it's $780,000 * (5/12) = $325,000. Adding the annual amortization of $21,000 gives $325,000 + $21,000 = $346,000. However, the correct choice is D, $333,750, which suggests a calculation error or a different interpretation of the question.

Question 2

Dodd Co. acquired 75% of the common stock of Wallace Corp. for $1,800,000. The fair value of Wallace's net assets was $2,100,000, and the book value was $1,900,000. The noncontrolling interest shares of Wallace Corp. are not actively traded.What is the dollar amount of fair value over book value differences for identifiable net assets attributed to Dodd at the date of acquisition?
A) $0.
B) $150,000.
C) $200,000.
D) $375,000.
E) $500,000.

Accepted Answer

The fair value of the identifiable net assets is $2,100,000, and the book value is $1,900,000. The difference is $200,000. Dodd acquired 75% of the common stock, so the dollar amount of fair value over book value differences for identifiable net assets attributed to Dodd is $200,000 x 75% = $150,000.

Question 3

Dodd Co. acquired 75% of the common stock of Wallace Corp. for $1,800,000. The fair value of Wallace's net assets was $2,100,000, and the book value was $1,900,000. The noncontrolling interest shares of Wallace Corp. are not actively traded.What is the dollar amount of noncontrolling interest that should appear in a consolidated balance sheet prepared at the date of acquisition?
A) $75,000.
B) $450,000.
C) $475,000.
D) $525,000.
E) $600,000.

Accepted Answer

E

Question 4

Which of the following methods is not used to value a noncontrolling interest under circumstances where a control premium is applied to determine the appropriate value for such interest?
A) Valuation models based on subsidiary discounted cash flows.
B) Valuation models based on subsidiary residual income projections.
C) Comparison with comparable investments.
D) The application of a safe harbor discount rate.
E) Fair value based on market trades.

Accepted Answer

The application of a safe harbor discount rate is not a method used to value a noncontrolling interest with a control premium. Safe harbor rates are typically used for tax purposes or regulatory compliance, not for valuation of noncontrolling interests.

Question 5

Renz Co. acquired 80% of the voting common stock of Sogers Corp. on January 1, 2022. During 2022, Sogers had revenues of $2,700,000 and expenses of $2,100,000. The amortization of fair value allocations totaled $65,000 in 2022. Not including its investment in Sogers, Renz Co. had its own revenues of $4,800,000 and expenses of $3,600,000 for the year 2022.What amount of consolidated net income for 2022 should be allocated to Renz's controlling interest in Sogers?
A) $1,200,000
B) $1,388,000
C) $1,440,000
D) $1,492,000
E) $1,628,000

Accepted Answer

The answer of Renz Co. acquired 80% of the voting...

Question 6

Dodd Co. acquired 75% of the common stock of Wallace Corp. for $1,800,000. The fair value of Wallace's net assets was $2,100,000, and the book value was $1,900,000. The noncontrolling interest shares of Wallace Corp. are not actively traded.What amount of goodwill should be attributed to Dodd at the date of acquisition?
A) $0.
B) $75,000.
C) $150,000.
D) $225,000.
E) $300,000.

Accepted Answer

The goodwill is the difference between the purchase price and the fair value of the net assets acquired. In this case, the purchase price is $1,800,000, the fair value of the net assets is $2,100,000, and the book value of the net assets is $1,900,000. Therefore, the goodwill is $2,100,000 - $1,800,000 = $300,000. Since Dodd acquired 75% of the common stock of Wallace Corp., the goodwill attributed to Dodd is 75% x $300,000 = $225,000.

Question 7

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000.What is the amount of excess land allocation attributed to the noncontrolling interest at the acquisition date?
A) $0.
B) $10,000.
C) $15,000.
D) $40,000.
E) $50,000.

Accepted Answer

The answer of When Valley Co. acquired 80% of the...

Question 8

LaFevor Co. acquired 70% of the common stock of Dean Corp. on August 1, 2022. For 2022, Dean reported revenues of $960,000 and expenses of $780,000, all reflected evenly throughout the year. The annual amount of amortization related to this acquisition was $21,000.What is the amount of Dean's net income attributable to the controlling interest for 2022?
A) $19,875.
B) $46,375.
C) $66,250.
D) $111,300.
E) $126,000.

Accepted Answer

The answer of LaFevor Co. acquired 70% of the common...

Question 9

LaFevor Co. acquired 70% of the common stock of Dean Corp. on August 1, 2022. For 2022, Dean reported revenues of $960,000 and expenses of $780,000, all reflected evenly throughout the year. The annual amount of amortization related to this acquisition was $21,000.What is the amount of the noncontrolling interest's share of Dean's income for 2022?
A) $15,900.
B) $19,875.
C) $46,375.
D) $47,700.
E) $54,000.

Accepted Answer

The answer of LaFevor Co. acquired 70% of the common...

Question 10

Dodd Co. acquired 75% of the common stock of Wallace Corp. for $1,800,000. The fair value of Wallace's net assets was $2,100,000, and the book value was $1,900,000. The noncontrolling interest shares of Wallace Corp. are not actively traded.What amount of goodwill should be attributed to the noncontrolling interest at the date of acquisition?
A) $0.
B) $25,000.
C) $50,000.
D) $75,000.
E) $175,000.

Accepted Answer

The answer of Dodd Co. acquired 75% of the common...

Question 11

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000.What amount should have been reported for the land in a consolidated balance sheet at the acquisition date?
A) $40,000.
B) $50,000.
C) $75,000.
D) $100,000.
E) $125,000.

Accepted Answer

In a consolidated balance sheet, assets are reported at their fair value at the acquisition date. Therefore, the land should be reported at its fair value of $125,000.

Question 12

Dodd Co. acquired 75% of the common stock of Wallace Corp. for $1,800,000. The fair value of Wallace's net assets was $2,100,000, and the book value was $1,900,000. The noncontrolling interest shares of Wallace Corp. are not actively traded.What is the total amount of goodwill recognized at the date of acquisition?
A) $0.
B) $100,000.
C) $200,000.
D) $300,000.
E) $700,000.

Accepted Answer

The answer of Dodd Co. acquired 75% of the common...

Question 13

LaFevor Co. acquired 70% of the common stock of Dean Corp. on August 1, 2022. For 2022, Dean reported revenues of $960,000 and expenses of $780,000, all reflected evenly throughout the year. The annual amount of amortization related to this acquisition was $21,000.What is the effect of including Dean in consolidated net income for 2022?
A) $8,750.
B) $66,250.
C) $75,000.
D) $126,000.
E) $159,000.

Accepted Answer

Dean's net income for 2022 is $180,000 ($960,000 - $780,000). LaFevor's share of Dean's net income is 70% x $180,000 = $126,000. However, the amortization related to the acquisition reduces LaFevor's consolidated net income by $21,000. Therefore, the effect of including Dean in consolidated net income for 2022 is $126,000 - $21,000 = $105,000.

Question 14

Dunne Inc. bought 65% of the outstanding common stock of Hardy Inc. in an acquisition that resulted in the recognition of goodwill. Hardy owned a piece of land that cost $375,000 but was worth $700,000 at the date of acquisition. What value would be attributed to this land in a consolidated balance sheet at the date of acquisition?
A) $245,000.
B) $325,000.
C) $375,000.
D) $455,000.
E) $700,000.

Accepted Answer

In a consolidated balance sheet, assets are recorded at their fair value at the date of acquisition. Therefore, the land would be valued at its fair value of $700,000.

Question 15

Renz Co. acquired 80% of the voting common stock of Sogers Corp. on January 1, 2022. During 2022, Sogers had revenues of $2,700,000 and expenses of $2,100,000. The amortization of fair value allocations totaled $65,000 in 2022. Not including its investment in Sogers, Renz Co. had its own revenues of $4,800,000 and expenses of $3,600,000 for the year 2022.The noncontrolling interest's share of the earnings of Sogers Corp. for 2022 is calculated to be
A) $0.
B) $107,000.
C) $120,000.
D) $133,000.
E) $240,000.

Accepted Answer

The noncontrolling interest's share of the earnings of Sogers Corp. for 2022 is calculated as follows:Sogers Corp. net income: $2,700,000 - $2,100,000 = $600,000Noncontrolling interest's share: 20% x $600,000 = $120,000

Question 16

Daniels Inc. acquired 85% of the outstanding common stock of Noyce Corp.in 2021. Noyce currently owes Daniels $400,000 for inventory acquired during 2022. In preparing consolidated financial statements for 2022, what amount of Noyce's liability should be eliminated?
A) $0.
B) $60,000.
C) $300,000.
D) $340,000.
E) $400,000.

Accepted Answer

In consolidated financial statements, intercompany transactions and balances are eliminated. Since Noyce owes Daniels $400,000, this entire amount should be eliminated to avoid double counting within the consolidated entity.

Question 17

Dodd Co. acquired 75% of the common stock of Wallace Corp. for $1,800,000. The fair value of Wallace's net assets was $2,100,000, and the book value was $1,900,000. The noncontrolling interest shares of Wallace Corp. are not actively traded.What is the dollar amount of Wallace Corp.'s net assets that would be represented in a consolidated balance sheet prepared at the date of acquisition?
A) $1,575,000.
B) $1,800,000.
C) $1,900,000.
D) $2,100,000.
E) $2,400,000.

Accepted Answer

The net assets in a consolidated balance sheet are represented at their fair value at the date of acquisition, which is $2,100,000.

Question 18

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000.What is the amount of excess land allocation attributed to the controlling interest at the acquisition date?
A) $0.
B) $12,500.
C) $40,000.
D) $50,000.
E) $60,000.

Accepted Answer

The excess land allocation is the difference between the fair value and book value of the land, which is $125,000 - $75,000 = $50,000. Since Valley Co. acquired 80% of Coleman, the controlling interest is 80% of the excess, which is 80% of $50,000 = $40,000.

Question 19

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000.What is the total amount of excess land allocation at the acquisition date?
A) $0.
B) $40,000.
C) $50,000.
D) $60,000.
E) $75,000.

Accepted Answer

The excess land allocation is the difference between the fair value and the book value of the land, which is $125,000 - $75,000 = $50,000.

Question 20

Renz Co. acquired 80% of the voting common stock of Sogers Corp. on January 1, 2022. During 2022, Sogers had revenues of $2,700,000 and expenses of $2,100,000. The amortization of fair value allocations totaled $65,000 in 2022. Not including its investment in Sogers, Renz Co. had its own revenues of $4,800,000 and expenses of $3,600,000 for the year 2022.What amount would Renz Co. report as consolidated net income for 2022?
A) $600,000.
B) $1,200,000.
C) $1,735,000.
D) $1,800,000.
E) $1,865,000.

Accepted Answer

Renz Co.'s own net income is $1,200,000 ($4,800,000 - $3,600,000). Sogers' net income is $600,000 ($2,700,000 - $2,100,000). Renz Co. owns 80% of Sogers, so it recognizes 80% of Sogers' net income, which is $480,000 (80% of $600,000). The amortization of fair value allocations reduces this by $65,000, resulting in $415,000. Consolidated net income is $1,200,000 + $415,000 = $1,615,000. However, the correct choice is $1,735,000, which suggests an error in the calculation or options provided.

Quiz 4: Consolidated Financial Statements and Outside Ownership

Which of the following methods is not used to value a noncontrolling interest under circumstances where a control premium is applied to determine the appropriate value for such interest?

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000.What is the amount of excess land allocation attributed to the noncontrolling interest at the acquisition date?

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000.What amount should have been reported for the land in a consolidated balance sheet at the acquisition date?

Daniels Inc. acquired 85% of the outstanding common stock of Noyce Corp.in 2021. Noyce currently owes Daniels $400,000 for inventory acquired during 2022. In preparing consolidated financial statements for 2022, what amount of Noyce's liability should be eliminated?

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000.What is the amount of excess land allocation attributed to the controlling interest at the acquisition date?

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000.What is the total amount of excess land allocation at the acquisition date?