Question 1

Matthews Co. acquired all of the common stock of Jackson Co. on January 1, 2020. As of that date, Jackson had the following trial balance:  During 2020, Jackson reported net income of $96,000 while paying dividends of $12,000. During 2021, Jackson reported net income of $132,000 while paying dividends of $36,000. Assume that Matthews Co. acquired the common stock of Jackson Co. for $588,000 in cash. As of January 1, 2020, Jackson's land had a fair value of $102,000, its buildings were valued at $188,000, and its equipment was appraised at $216,000. Any excess of consideration transferred over fair value of assets and liabilities acquired is due to an unamortized patent to be amortized over 10 years.Matthews decided to use the equity method for this investment.Required:(A.) Prepare consolidation worksheet entries for December 31, 2020.(B.) Prepare consolidation worksheet entries for December 31, 2021.

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Question 2

On 1/1/19, Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash. On the date of acquisition, DotDot's net book value was $900,000. DotDot's assets included land that was undervalued by $300,000, a building that was undervalued by $400,000, and equipment that was overvalued by $50,000. The building had a remaining useful life of 8 years and the equipment had a remaining useful life of 4 years. Any excess fair value over consideration transferred is allocated to an undervalued patent and is amortized over 5 years.Determine the amortization expense related to the consolidation at the year-end date of 12/31/27.

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Question 3

For an acquisition when the subsidiary maintains its incorporation, under the partial equity method, what adjustments are made to the balance of the investment account?

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Question 4

How does the parent's choice of investment accounting method impact consolidated figures reported by the combined entity?

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Question 5

On January 1, 2019, Rand Corp. issued shares of its common stock to acquire all of the outstanding common stock of Spaulding Inc. Spaulding's book value was only $140,000 at the time, but Rand issued 12,000 shares having a par value of $1 per share and a fair value of $20 per share. Rand was willing to convey these shares because it felt that buildings (ten-year life) were undervalued on Spaulding's records by $60,000 while equipment (five-year life) was undervalued by $25,000. Any consideration transferred over fair value of identified net assets acquired is assigned to goodwill.Following are the individual financial records for these two companies for the year ended December 31, 2022.  Required:Prepare a consolidation worksheet for this business combination.

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Question 6

Paperless Co. acquired Sheetless Co. and in effecting this business combination, there was a cash-flow performance contingency to be paid in cash, and a market-price performance contingency to be paid in additional shares of stock. In what accounts and in what section(s) of a consolidated balance sheet are these contingent consideration items shown?

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Question 7

Pritchett Company recently acquired three businesses, recognizing goodwill in each acquisition. Destin has allocated its acquired goodwill to its three reporting units: Apple, Banana, and Carrot. Pritchett provides the following information in performing the 2021 annual review for impairment:  Which of Pritchett's reporting units require both steps to test for goodwill impairment?

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Question 8

For each of the following situations, select the best answer that applies to consolidating financial information subsequent to the acquisition date:(A) Initial value method.(B) Partial equity method.(C) Equity method.(D) Initial value method and partial equity method but not equity method.(E) Partial equity method and equity method but not initial value method.(F) Initial value method, partial equity method, and equity method.Method(s) available to the parent for internal record-keeping.Easiest internal record-keeping method to apply.Income of the subsidiary is recorded by the parent when earned.Designed to create a parallel between the parent's investment accounts and changes in the underlying equity of the acquired company.For years subsequent to acquisition, requires the *C entry.Uses the cash basis for income recognition.Investment account remains at initially recorded amount.Dividends received by the parent from the subsidiary reduce the parent's investment account.Often referred to in accounting as a single-line consolidation.Increases the investment account for subsidiary earnings, but does not decrease the subsidiary account for equity adjustments such as amortizations.

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Question 9

Avery Company acquires Billings Company in a combination accounted for as an acquisition and adopts the equity method to account for Investment in Billings. At the end of four years, the Investment in Billings account on Avery's books is $198,984. What items constitute this balance?

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Question 10

What is the basic objective of all consolidations?

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Question 11

How is the goodwill impairment process simplified for private companies?

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Question 12

On 1/1/19, Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash. On the date of acquisition, DotDot's net book value was $900,000. DotDot's assets included land that was undervalued by $300,000, a building that was undervalued by $400,000, and equipment that was overvalued by $50,000. The building had a remaining useful life of 8 years and the equipment had a remaining useful life of 4 years. Any excess fair value over consideration transferred is allocated to an undervalued patent and is amortized over 5 years.Determine the amortization expense related to the combination at the year-end date of 12/31/19.

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Question 13

What is the partial equity method? How does it differ from the equity method? What are its advantages and disadvantages compared to the equity method?

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Question 14

From which methods can a parent choose for its internal recordkeeping related to the operations of a subsidiary?

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Question 15

Yules Co. acquired Noel Co. and applied the acquisition method. Yules decided to use the partial equity method to account for the investment. The current balance in the investment account is $416,000. Describe in words how this balance was derived.

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The answer of Yules Co. acquired Noel Co. and applied...

Question 16

Pritchett Company recently acquired three businesses, recognizing goodwill in each acquisition. Destin has allocated its acquired goodwill to its three reporting units: Apple, Banana, and Carrot. Pritchett provides the following information in performing the 2021 annual review for impairment:  How much goodwill impairment should Pritchett report for 2021?

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Question 17

For recognized intangible assets that are considered to possess indefinite lives, what is the accounting treatment for purposes of income recognition?

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Question 18

What should an entity evaluate when making an initial impairment assessment of an intangible asset (other than goodwill)?

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Question 19

For an acquisition when the subsidiary retains its incorporation, which method of internal recordkeeping gives the most accurate portrayal of the accounting results for the entire business combination?

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Question 20

Utah Inc. acquired all of the outstanding common stock of Trimmer Corp. on January 1, 2019. At that date, Trimmer owned only three assets and had no liabilities:  If Utah paid $300,000 in cash for Trimmer, what allocation and amortization should have been assigned to the subsidiary's Building account and its Equipment account in a December 31, 2021 consolidation?

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Quiz 3: Consolidations - Subsequent to the Date of Acquisition