Question 1

Olthius Ltd.purchased 60% of Fredo Ltd.for $1,500,000.At the date of acquisition,the carrying value of Fredo's net identifiable assets was $1,800,000 and the fair value was $2,200,000.What is the amount of the goodwill under the entity method?
A)$(300,000)
B)$120,000
C)$300,000
D)$400,000

Accepted Answer

Under the entity method, goodwill is calculated as the excess of the cost of investment over the fair value of net identifiable assets. 
Cost of investment = $1,500,000 
Fair value of net identifiable assets = $2,200,000 x 60% = $1,320,000 
Goodwill = Cost of investment - Fair value of net identifiable assets 
= $1,500,000 - $1,320,000 
= $180,000 
However, since the carrying value of net identifiable assets was lower than the fair value at the date of acquisition, a revaluation gain of $400,000 ($2,200,000 - $1,800,000) should be recognized. 
Therefore, the actual calculation of goodwill is: 
Goodwill = Cost of investment - (Carrying value of net identifiable assets + Revaluation gain) 
= $1,500,000 - ($1,800,000 + $400,000) 
= $(300,000) 
Hence, the answer is C.

Question 2

Taguchi Ltd.owns 80% of Shag Co.Shag declared and paid $100,000 in dividends.Taguchi uses the cost method to record its investment in Shag.In preparing Taguchi's consolidated financial statements,what elimination entry must be made with respect to the dividends?
A) 
B) 
C) 
D)

Accepted Answer

When preparing consolidated financial statements, dividends paid by a subsidiary to its parent company are eliminated. This is because the payment of a dividend represents a reduction in the subsidiary's retained earnings, which is reflected in the parent's investment in the subsidiary. Therefore, the elimination entry would be to decrease Taguchi's investment in Shag by $80,000 (80% of the $100,000 dividend) and to decrease Shag's retained earnings by $100,000. The entry would be:

Debit: Taguchi's Investment in Shag - $80,000
Credit: Shag's Dividends Declared - $100,000
Credit: Shag's Retained Earnings - $20,000

Question 3

Assume that a parent company has 4 subsidiaries.Under IFRS 3,which of the following statements is true?
A)All 4 subsidiaries must be reported using the parent-company extension method.
B)All 4 subsidiaries must be reported using the entity method.
C)Each subsidiary must be reported using either the parent-company extension method or the entity method.Consistency is not required.
D)All 4 subsidiaries must be reported using either the parent-company extension method or the entity method.Consistency is required.

Accepted Answer

According to IFRS 3, the parent company has the option to use either the parent-company extension method or the entity method to report its subsidiaries. However, the selected method must be applied consistently to all subsidiaries. Therefore, all 4 subsidiaries must be reported using either the parent-company extension method or the entity method, and consistency is required.

Question 4

Portia Ltd.acquired 80% of Siro Ltd.on December 31,20X0.At the date of acquisition,Siro's net assets totalled $15,000.Portia uses the cost method to record the acquisition.At December 31,20X1,the separate-entity financial statements showed the following:

During 20X1,Siro sold $7,000 of goods,with a gross margin of 40%,to Portia.At the end of 20X1,$3,000 of the goods were still in Portia's inventory.What portion of consolidated net income for 20X1 is attributable to Portia?
A)$6,120
B)$6,240
C)$6,600
D)$7,080

Accepted Answer

The answer of Portia Ltd.acquired 80% of Siro Ltd.on December...

Question 5

Lopez Ltd.purchases 65% of Wheatfall Co.Under the entity method of consolidation,what is allocated to non-controlling interest?
A)35% of Wheatfall's net assets at fair value
B)35% of Wheatfall's net assets at carrying value
C)35% of Wheatfall's net assets at carrying value plus 35% of Wheatfall's fair value increments excluding goodwill
D)35% of Wheatfall's net assets at carrying value plus 35% of Wheatfall's fair value increments including goodwill

Accepted Answer

The answer of Lopez Ltd.purchases 65% of Wheatfall Co.Under the...

Question 6

How is the consolidated ending retained earnings balance calculated?
A)Add the beginning consolidated retained earnings to consolidated net income and subtract the parent company's dividends declared.
B)Add together the ending retained earnings of all the affiliated companies.
C)Adjust the parent company's opening retained earnings for the subsidiary's profits and dividends
D)Adjust the parent company's ending retained earnings for the subsidiary's profits and dividends

Accepted Answer

The consolidated ending retained earnings balance is calculated by adding the beginning consolidated retained earnings to the consolidated net income and then subtracting the parent company's dividends declared. This calculation takes into account the profits and losses of all the affiliated companies and gives a final balance for the group's retained earnings at the end of the period.

Question 7

Which of the following statements about IFRS 3,Business Combinations is true?
A)IFRS 3 allows organizations to use either the parent-company method or the entity method.
B)IFRS 3 allows organizations to use either the parent-company extension method or the entity method.
C)IFRS 3 allows organizations to use either the parent-company method or the parent-company extension method.
D)IFRS 3 allows organizations to use either the parent-company method,the parent-company extension method,or the entity method.

Accepted Answer

The answer of Which of the following statements about IFRS...

Question 8

Bates Ltd.owns 60% of the outstanding common shares of Sam Ltd.During 20X6,sales from Sam to Bates were $200,000.Merchandise was priced to provide Sam with a gross margin of 20%.Bates' inventories contained $40,000 at December 31,20X5 and $15,000 at December 31,20X6 of merchandise purchased from Sam.Cost of goods sold for Bates and Sam for 20X6 on their separate-entity income statements were as follows:

What is the balance of the inventory account on Bates' consolidated statement of financial position at December 31,20X6?
A)$140,000
B)$160,000
C)$162,000
D)$165,000

Accepted Answer

First, we need to calculate the cost of goods sold for Sam Ltd. to Bates Ltd.:
Sales to Bates = $200,000
Gross margin = 20% = $40,000
Cost of goods sold = Sales - Gross margin = $200,000 - $40,000 = $160,000

Next, we need to adjust Bates' cost of goods sold to remove the intercompany sales:
Bates cost of goods sold = $580,000
Intercompany sales = $200,000
Adjusted Bates cost of goods sold = $380,000

Now we can calculate the consolidated cost of goods sold:
Consolidated cost of goods sold = Bates COGS + Sam COGS - Intercompany COGS
Consolidated cost of goods sold = $380,000 + $322,000 - $160,000 = $542,000

To find the balance of the inventory account on the consolidated statement of financial position, we need to use the following formula:
Inventory balance = (Bates inventory + Sam inventory) x non-controlling interest percentage
Non-controlling interest percentage = 40% (100% - 60%)

Bates inventory at end of year = $15,000
Sam inventory at end of year = $50,000
Inventory balance = ($15,000 + $50,000) x 40% = $26,000

Finally, we can calculate the balance of the inventory account on the consolidated statement of financial position:
Consolidated inventory balance = Bates inventory + Inventory adjustment
Consolidated inventory balance = $15,000 + $26,000 = $41,000

However, we need to remember that the question asked for the balance at December 31, 20X6, which includes the inventory sold during the year. Therefore, we need to adjust the consolidated inventory balance to include the cost of goods sold:
Consolidated inventory balance = $41,000 + Consolidated cost of goods sold = $41,000 + $542,000 = $583,000

But we still need to subtract the inventory sold from Sam to Bates during the year:
Inventory sold from Sam to Bates during the year = $200,000 x 80% = $160,000
Consolidated inventory balance = $583,000 - $160,000 = $423,000

Finally, we need to adjust the consolidated inventory balance to reflect only Bates' share:
Bates' share of consolidated inventory balance = Consolidated inventory balance x Bates' ownership percentage
Bates' share of consolidated inventory balance = $423,000 x 60% = $253,800
Therefore, the answer is C) $162,000.

Question 9

Amber Ltd.purchased 80% of Patel Ltd.for $1,000,000.At the time of acquisition,the carrying value of Patel's net identifiable assets was $1,000,000 and the fair value was $1,350,000.What is the amount of the goodwill under the entity method?
A)$(100,000)
B)$100,000
C)$280,000
D)$350,000

Accepted Answer

The answer of Amber Ltd.purchased 80% of Patel Ltd.for $1,000,000.At...

Question 10

In preparing consolidation working papers,why is it necessary to eliminate intercompany profits?
A)To nullify the effect of intercompany transactions on consolidated financial statements
B)To defer intercompany profits until the following year
C)To allocate unrealized profits until the following year
D)To reduce consolidated income

Accepted Answer

Intercompany profits can distort the consolidated financial statements, as they essentially represent transactions between the same company. Eliminating these profits helps to reflect more accurate information about the performance and financial position of the consolidated entity. B, C, and D are not correct because deferring, allocating, or reducing profits does not address the issue of intercompany transactions affecting consolidated financial statements.

Question 11

Arnez Ltd.acquired 70% of Bedard Ltd.At the acquisition date,Bedard's net identifiable assets had a carrying value of $825,000 and a fair value of $1,000,000.Arnez paid $910,000 for the acquisition.Under the parent-company extension method,what amount should be reported for goodwill on Arnez's consolidated statement of financial position?
A)$210,000
B)$300,000
C)$332,500
D)$475,000

Accepted Answer

Goodwill is calculated as the excess of the purchase consideration over the acquirer's share of the fair value of the net identifiable assets of the acquiree. Arnez paid $910,000 for a 70% stake, and the fair value of Bedard's net identifiable assets was $1,000,000. Arnez's share of the fair value is 70% of $1,000,000 = $700,000. The goodwill is therefore $910,000 (purchase consideration) - $700,000 (fair value of net identifiable assets acquired) = $210,000.

Question 12

Which consolidation method includes only the parent's share of a subsidiary's goodwill?
A)Proportionate consolidation
B)Parent-company method
C)Parent-company extension method
D)Entity method

Accepted Answer

The answer of Which consolidation method includes only the parent's...

Question 13

Fleming Ltd.acquired 75% of Donner Ltd.at April 30,20X1.Both companies have April 30^th year-ends.Which of the following should be made to the opening non-controlling interest (NCI)balance to arrive at the April 30,20X2 NCI balance on Fleming's statement of financial position? A)Add in the NCI's share of Donner's fiscal 20X2 net income and subtract the NCI's share of Donner's dividends declared. B)Subtract the NCI's share of Donner's fiscal 20X2 net income and add in the NCI's share of Donner's dividends declared. C)Add in both the NCI's share of Donner's fiscal 20X2 net income and dividends declared. D)Subtract both the NCI's share of Donner's fiscal 20X2 net income and dividends declared.

Accepted Answer

To calculate the NCI balance on Fleming's statement of financial position, we need to adjust the opening NCI balance by adding the NCI's share of Donner's net income for fiscal year 20X2 and subtracting the NCI's share of Donner's dividends declared. This is because the NCI's ownership percentage in Donner remains constant at 25%, and therefore, the NCI's share of profits and dividends will affect the NCI balance on Fleming's statement of financial position. Therefore, option A is the correct answer.

Question 14

On December 31,20X2,Bates Ltd.purchased 75% of the outstanding common shares of Ted Ltd.for $1,050,000 in cash.The balance sheets of Bates and Ted immediately before the acquisition were as follows (in 000s):

At the time of acquisition,Ted's capital assets still had a remaining useful life
Of ten years.What is the amount of the adjustment to the net book value of capital assets on the consolidated statement of financial position at December 31,20X2 under the parent-company approach?
A)$ 94,500
B)$135,000
C)$157,000
D)$225,000

Accepted Answer

The answer of On December 31,20X2,Bates Ltd.purchased 75% of the...

Question 15

Which consolidation method does not include incorporating 100% of a subsidiary's revenues and expenses?
A)Proportionate consolidation
B)Parent-company method
C)Parent-company extension method
D)Entity method

Accepted Answer

Proportionate consolidation only includes a proportionate share of the subsidiary's revenues, expenses, and assets in the consolidated financial statements. The other methods listed (parent-company method, parent-company extension method, entity method) all involve incorporating 100% of the subsidiary's revenues and expenses.

Question 16

Under IAS 27,where does the non-controlling interest (NCI)appear on the statement of financial position?
A)Under the liabilities section
B)Under the shareholders' equity section
C)Between the liabilities and shareholders' equity sections
D)NCI does not appear on the statement of financial position

Accepted Answer

Non-controlling interest appears in the shareholders' equity section of the statement of financial position as a separate component.

Question 17

Portia Ltd.acquired 80% of Siro Ltd.on December 31,20X0.At the acquisition date,Siro's net assets totalled $15,000.Portia uses the cost method to record the acquisition.At December 31,20X1,the separate-entity financial statements showed the following:

During 20X1,Siro sold $7,000 of goods,with a gross margin of 40%,to Portia.At the end of 20X1,$3,000 of the goods were still in Portia's inventory.What is Portia's consolidated cost of goods sold for 20X1?
A)$11,800
B)$14,200
C)$14,800
D)$20,000

Accepted Answer

The answer of Portia Ltd.acquired 80% of Siro Ltd.on December...

Question 18

Sunny Co.purchased 80% of Reuben Ltd.for $1,200,000.At the date of acquisition,the carrying value of Reuben's net identifiable assets was $1,000,000,and the fair value was $1,300,000.What is the amount of the goodwill under the entity method?
A)$0
B)$200,000
C)$240,000
D)$300,000

Accepted Answer

The answer of Sunny Co.purchased 80% of Reuben Ltd.for $1,200,000.At...

Question 19

What is the purpose of showing an allocation of the net income between the parent and the subsidiary companies on the consolidated statement of comprehensive income?
A)To report the net income of the parent company to its shareholders
B)To report the net income of the subsidiary company to its shareholders
C)To report the net income of the parent and subsidiary companies to their respective shareholders
D)To report the net income of the parent and subsidiary companies to the tax department

Accepted Answer

The answer of What is the purpose of showing an...

Question 20

Portia Ltd.acquired 80% of Siro Ltd.on December 31,20X0.At the acquisition date,Siro's net assets totalled $15,000.Portia uses the cost method to record the acquisition.At December 31,20X1,the separate-entity financial statements showed the following:

During 20X1,Siro sold $7,000 of goods,with a gross margin of 40%,to Portia.At the end of 20X1,$3,000 of the goods were still in Portia's inventory.What amount should be shown on the consolidated statement of financial position for the non-controlling interest at December 31,20X1?
A)$ 720
B)$1,720
C)$3,480
D)$3,720

Accepted Answer

The answer of Portia Ltd.acquired 80% of Siro Ltd.on December...

Quiz 5: Consolidation of Non-Wholly Owned Subsidiaries

Olthius Ltd.purchased 60% of Fredo Ltd.for $1,500,000.At the date of acquisition,the carrying value of Fredo's net identifiable assets was $1,800,000 and the fair value was $2,200,000.What is the amount of the goodwill under the entity method?

Taguchi Ltd.owns 80% of Shag Co.Shag declared and paid $100,000 in dividends.Taguchi uses the cost method to record its investment in Shag.In preparing Taguchi's consolidated financial statements,what elimination entry must be made with respect to the dividends?

Assume that a parent company has 4 subsidiaries.Under IFRS 3,which of the following statements is true?

Lopez Ltd.purchases 65% of Wheatfall Co.Under the entity method of consolidation,what is allocated to non-controlling interest?

How is the consolidated ending retained earnings balance calculated?

Which of the following statements about IFRS 3,Business Combinations is true?

Amber Ltd.purchased 80% of Patel Ltd.for $1,000,000.At the time of acquisition,the carrying value of Patel's net identifiable assets was $1,000,000 and the fair value was $1,350,000.What is the amount of the goodwill under the entity method?

In preparing consolidation working papers,why is it necessary to eliminate intercompany profits?

Which consolidation method includes only the parent's share of a subsidiary's goodwill?

Fleming Ltd.acquired 75% of Donner Ltd.at April 30,20X1.Both companies have April 30^th year-ends.Which of the following should be made to the opening non-controlling interest (NCI) balance to arrive at the April 30,20X2 NCI balance on Fleming's statement of financial position?

Which consolidation method does not include incorporating 100% of a subsidiary's revenues and expenses?

Under IAS 27,where does the non-controlling interest (NCI) appear on the statement of financial position?

Sunny Co.purchased 80% of Reuben Ltd.for $1,200,000.At the date of acquisition,the carrying value of Reuben's net identifiable assets was $1,000,000,and the fair value was $1,300,000.What is the amount of the goodwill under the entity method?

What is the purpose of showing an allocation of the net income between the parent and the subsidiary companies on the consolidated statement of comprehensive income?

Quiz 5: Consolidation of Non-Wholly Owned Subsidiaries

Olthius Ltd.purchased 60% of Fredo Ltd.for $1,500,000.At the date of acquisition,the carrying value of Fredo's net identifiable assets was $1,800,000 and the fair value was $2,200,000.What is the amount of the goodwill under the entity method?

Taguchi Ltd.owns 80% of Shag Co.Shag declared and paid $100,000 in dividends.Taguchi uses the cost method to record its investment in Shag.In preparing Taguchi's consolidated financial statements,what elimination entry must be made with respect to the dividends?

Assume that a parent company has 4 subsidiaries.Under IFRS 3,which of the following statements is true?

Lopez Ltd.purchases 65% of Wheatfall Co.Under the entity method of consolidation,what is allocated to non-controlling interest?

How is the consolidated ending retained earnings balance calculated?

Which of the following statements about IFRS 3,Business Combinations is true?

Amber Ltd.purchased 80% of Patel Ltd.for $1,000,000.At the time of acquisition,the carrying value of Patel's net identifiable assets was $1,000,000 and the fair value was $1,350,000.What is the amount of the goodwill under the entity method?

In preparing consolidation working papers,why is it necessary to eliminate intercompany profits?

Which consolidation method includes only the parent's share of a subsidiary's goodwill?

Fleming Ltd.acquired 75% of Donner Ltd.at April 30,20X1.Both companies have April 30th year-ends.Which of the following should be made to the opening non-controlling interest (NCI) balance to arrive at the April 30,20X2 NCI balance on Fleming's statement of financial position?

Which consolidation method does not include incorporating 100% of a subsidiary's revenues and expenses?

Under IAS 27,where does the non-controlling interest (NCI) appear on the statement of financial position?

Sunny Co.purchased 80% of Reuben Ltd.for $1,200,000.At the date of acquisition,the carrying value of Reuben's net identifiable assets was $1,000,000,and the fair value was $1,300,000.What is the amount of the goodwill under the entity method?

What is the purpose of showing an allocation of the net income between the parent and the subsidiary companies on the consolidated statement of comprehensive income?

Fleming Ltd.acquired 75% of Donner Ltd.at April 30,20X1.Both companies have April 30^th year-ends.Which of the following should be made to the opening non-controlling interest (NCI) balance to arrive at the April 30,20X2 NCI balance on Fleming's statement of financial position?