Question 1

On January 1, 2020, Hemingway Co. acquired all of the common stock of Crotec Corp. For 2020, Crotec earned net income of $375,000 and paid dividends of $200,000. Amortization of the patent allocation that was included in the acquisition was $8,000.How much difference would there have been in Hemingway's income with regard to the effect of the investment, between using the equity method or using the partial equity method of internal recordkeeping?

Accepted Answer

Under the equity method, Hemingway would recognize its share of Crotec's net income and amortization of the patent. Under the partial equity method, only the share of net income is recognized. The difference is the amortization amount of $8,000.

Question 2

On January 1, 2020, Barber Corp. paid $1,160,000 to acquire Thompson Co. Thompson maintained separate incorporation. Barber used the equity method to account for the investment. The following information is available for Thompson's assets, liabilities, and stockholders' equity accounts on January 1, 2020:  Thompson earned net income for 2020 of $134,000 and paid dividends of $51,000 during the year.What is the balance in Barber's investment in subsidiary account at the end of 2020?

Accepted Answer

D

Question 3

Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment?

Accepted Answer

The balance in the investment account on the parent's books varies between the equity, initial value, and partial equity methods, as each method records the investment differently on the parent's financial statements.

Question 4

Which of the following is not an example of an intangible asset?

Accepted Answer

Broken equipment is a tangible asset, as it is a physical object, unlike the other options which are intangible assets.

Question 5

Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination?

Accepted Answer

Equity in Subsidiary Earnings is an account used in the parent's books to record its share of the subsidiary's profits. In consolidated financial statements, the subsidiary's revenues and expenses are combined with the parent's, so this account is not needed.

Question 6

On January 1, 2020, Hemingway Co. acquired all of the common stock of Crotec Corp. For 2020, Crotec earned net income of $375,000 and paid dividends of $200,000. Amortization of the patent allocation that was included in the acquisition was $8,000.How much difference would there have been in Hemingway's income with regard to the effect of the investment, between using the equity method or using the initial value method of internal recordkeeping?

Accepted Answer

The answer of On January 1, 2020, Hemingway Co. acquired...

Question 7

Vaughn Inc. acquired all of the outstanding common stock of Roberts Co. on January 1, 2020, for $276,000. Annual amortization of $21,000 resulted from this acquisition. Vaughn reported net income of $80,000 in 2020 and $60,000 in 2021 and paid $24,000 in dividends each year. Roberts reported net income of $50,000 in 2020 and $57,000 in 2021 and paid $12,000 in dividends each year. What is the Investment in Roberts Co. balance on Vaughn's books as of December 31, 2021, if the partial equity method has been applied?

Accepted Answer

Under the partial equity method, the investment account is adjusted for the investor's share of the investee's net income and dividends, and amortization. Initial investment: $276,000. Add share of Roberts' net income: $50,000 (2020) + $57,000 (2021) = $107,000. Subtract amortization: $21,000 (2020) + $21,000 (2021) = $42,000. Subtract dividends received: $12,000 (2020) + $12,000 (2021) = $24,000. Calculation: $276,000 + $107,000 - $42,000 - $24,000 = $317,000.

Question 8

On January 1, 2020, Barber Corp. paid $1,160,000 to acquire Thompson Co. Thompson maintained separate incorporation. Barber used the equity method to account for the investment. The following information is available for Thompson's assets, liabilities, and stockholders' equity accounts on January 1, 2020:  Thompson earned net income for 2020 of $134,000 and paid dividends of $51,000 during the year.The 2020 total excess amortization of fair-value allocations is calculated to be

Accepted Answer

The answer of On January 1, 2020, Barber Corp. paid...

Question 9

Craft Corp. acquired all of the common stock of Pitts Co. in 2019. Pitts maintained its incorporation. Which of Craft's account balances would vary between the equity method and the initial value method?

Accepted Answer

Under the equity method, the "Investment in Pitts Co." account is adjusted for Craft's share of Pitts' earnings and dividends, affecting "Equity in Subsidiary Earnings" and "Retained Earnings." The initial value method does not adjust for these changes.

Question 10

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?

Accepted Answer

A parent company can choose among the initial value, equity, or partial equity methods for internal record-keeping of a subsidiary acquired in a business combination.

Question 11

An impairment model is used

Accepted Answer

An impairment model is used to assess whether asset write-downs are appropriate for indefinite-lived assets, as these assets are not amortized but are tested for impairment annually or when there is an indication of impairment.

Question 12

Vaughn Inc. acquired all of the outstanding common stock of Roberts Co. on January 1, 2020, for $276,000. Annual amortization of $21,000 resulted from this acquisition. Vaughn reported net income of $80,000 in 2020 and $60,000 in 2021 and paid $24,000 in dividends each year. Roberts reported net income of $50,000 in 2020 and $57,000 in 2021 and paid $12,000 in dividends each year. What is the Investment in Roberts Co. balance on Vaughn's books as of December 31, 2021, if the equity method has been applied?

Accepted Answer

The Investment in Roberts Co. balance on Vaughn's books as of December 31, 2021, if the equity method has been applied, is $317,000. This is calculated as follows:Beginning balance: $276,000Add: Share of Roberts' net income (2020: $50,000 x 100% = $50,000; 2021: $57,000 x 100% = $57,000) 107,000Less: Share of Roberts' dividends (2020: $12,000 x 100% = $12,000; 2021: $12,000 x 100% = $12,000) (24,000)Less: Amortization of excess fair value over book value (2020: $21,000; 2021: $21,000) (42,000)Ending balance: $317,000

Question 13

Under the initial value method, the parent recognizes income when

Accepted Answer

The answer of Under the initial value method, the parent...

Question 14

On January 1, 2020, Barber Corp. paid $1,160,000 to acquire Thompson Co. Thompson maintained separate incorporation. Barber used the equity method to account for the investment. The following information is available for Thompson's assets, liabilities, and stockholders' equity accounts on January 1, 2020:  Thompson earned net income for 2020 of $134,000 and paid dividends of $51,000 during the year.In Barber's accounting records, what amount would appear on December 31, 2020 for equity in subsidiary earnings?

Accepted Answer

The answer of On January 1, 2020, Barber Corp. paid...

Question 15

Reeder Corp. acquired one hundred percent of O'Neill Inc. on January 1, 2019, at a price in excess of the subsidiary's fair value. On that date, Reeder's equipment (ten-year life) had a book value of $380,000 but a fair value of $460,000. O'Neill had equipment (ten-year life) with a book value of $240,000 and a fair value of $370,000. Reeder used the partial equity method to record its investment in O'Neill. On December 31, 2021, Reeder had equipment with a book value of $270,000 and a fair value of $400,000. O'Neill had equipment with a book value of $180,000 and a fair value of $300,000. What is the consolidated balance for the Equipment account as of December 31, 2021?

Accepted Answer

The consolidated balance for the Equipment account as of December 31, 2021, is $541,000. This is calculated by adding the book values of the equipment of both companies ($270,000 + $180,000 = $450,000) and then adding the difference between the fair values and book values of the equipment of both companies ($400,000 - $270,000 = $130,000 + $300,000 - $180,000 = $150,000).

Question 16

Under the partial equity method, the parent recognizes income when

Accepted Answer

Under the partial equity method, the parent recognizes income when it is earned by the subsidiary, reflecting the parent's share of the subsidiary's earnings.

Question 17

Vaughn Inc. acquired all of the outstanding common stock of Roberts Co. on January 1, 2020, for $276,000. Annual amortization of $21,000 resulted from this acquisition. Vaughn reported net income of $80,000 in 2020 and $60,000 in 2021 and paid $24,000 in dividends each year. Roberts reported net income of $50,000 in 2020 and $57,000 in 2021 and paid $12,000 in dividends each year. What is the Investment in Roberts Co. balance on Vaughn's books as of December 31, 2021, if the initial value method has been applied?

Accepted Answer

Under the initial value method, the investment remains at its original cost, which is $276,000, and is not adjusted for the subsidiary's income, dividends, or amortization.

Question 18

On January 1, 2020, Barber Corp. paid $1,160,000 to acquire Thompson Co. Thompson maintained separate incorporation. Barber used the equity method to account for the investment. The following information is available for Thompson's assets, liabilities, and stockholders' equity accounts on January 1, 2020:  Thompson earned net income for 2020 of $134,000 and paid dividends of $51,000 during the year.At the end of 2020, the consolidation entry to eliminate Barber's accrual of Thompson's earnings would include a credit to Investment in Thompson Co. for

Accepted Answer

The answer of On January 1, 2020, Barber Corp. paid...

Question 19

On January 1, 2020, Barber Corp. paid $1,160,000 to acquire Thompson Co. Thompson maintained separate incorporation. Barber used the equity method to account for the investment. The following information is available for Thompson's assets, liabilities, and stockholders' equity accounts on January 1, 2020:  Thompson earned net income for 2020 of $134,000 and paid dividends of $51,000 during the year.If Barber Corp. had net income of $468,000 in 2020, exclusive of the investment, what is the amount of consolidated net income?

Accepted Answer

The answer of On January 1, 2020, Barber Corp. paid...

Question 20

How does the partial equity method differ from the equity method?

Accepted Answer

The answer of How does the partial equity method differ...

Quiz 3: Consolidations - Subsequent to the Date of Acquisition

Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment?

Which of the following is not an example of an intangible asset?

Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination?

Craft Corp. acquired all of the common stock of Pitts Co. in 2019. Pitts maintained its incorporation. Which of Craft's account balances would vary between the equity method and the initial value method?

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?

An impairment model is used

Under the initial value method, the parent recognizes income when

Under the partial equity method, the parent recognizes income when

How does the partial equity method differ from the equity method?