Question 1

Lea Company acquired all of Tenzing Corporation's stock on January 1,2006 for $150,000 cash.On December 31,2008,the trial balances of the two companies were as follows:
Tenzing Corporation reported retained earnings of $75,000 at the date of acquisition.The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of five years from the date of acquisition.At December 31,2008,Tenzing owed Lea $4,000 for services provided.
 
-Based on the preceding information,what amount of total liabilities will be reported in the consolidated balance sheet for 2008?

Accepted Answer

To prepare a consolidated balance sheet, we need to eliminate the intercompany transactions and adjust the acquired company's book values to fair value at the time of acquisition.

Elimination of intercompany transaction: Tenzing owed Lea $4,000 for services provided, which needs to be eliminated from the consolidated balance sheet.

Adjustment of book values: The acquisition price was $150,000, and Tenzing reported retained earnings of $75,000 at the date of acquisition. Therefore, the fair value of Tenzing's net assets at the date of acquisition was $225,000 ($150,000 + $75,000). The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of five years from the date of acquisition. Therefore, the amount assigned to buildings and equipment would be $75,000 ($225,000 - $150,000), and this amount should be depreciated over five years.

The following table summarizes the adjustments:

|                      | Tenzing Corporation |         Lea Company        | Elimination | Adjustment |
|----------------------|---------------------|-----------------------------|--------------|--------------|
| Cash                 | $25,000             | $150,000                  |              |              |
| Accounts receivable  | $20,000             |                           |              |              |
| Inventory            | $50,000             |                           |              |              |
| Buildings and equipment | $200,000            | $400,000                 |              | $75,000     |
| Accumulated depreciation       | ($40,000)            | ($100,000)               |              | ($15,000)    |
| Total assets         | $255,000            | $450,000                |              | $60,000     |
| Accounts payable     | $35,000             |                           | ($4,000)      |              |
| Other liabilities    | $46,000             |                           |              |              |
| Common stock         | $100,000            | $250,000                |              |              |
| Retained earnings    | $74,000             | $150,000                |              |              |
| Total liabilities    | $81,000             |                           | ($4,000)      |              |
| Total equity         | $174,000            | $200,000                |              |              |
| Total liabilities and equity | $255,000            | $450,000                |              |              |

Therefore, the amount of total liabilities that will be reported in the consolidated balance sheet for 2008 is $221,000, which is calculated as $81,000 (Tenzing's total liabilities adjusted for the intercompany transaction) and $140,000 (Lea's total liabilities) added together.

Hence, the correct answer is B) $221,000.

Question 2

West,Inc.holds 100 percent of the common stock of Coast Company,an investment acquired for $680,000.Immediately following the combination,West's net assets have a book value of $1,150,000 and a fair value of $1,390,000.The book value and the fair value of Coast's net assets on the date of combination are $400,000 and $550,000,respectively.Immediately following the combination,a consolidated balance sheet is prepared.
-Based on the information given above,goodwill will be reported in the consolidated balance sheet in the amount of:

Accepted Answer

The answer of West,Inc.holds 100 percent of the common stock...

Question 3

West,Inc.holds 100 percent of the common stock of Coast Company,an investment acquired for $680,000.Immediately following the combination,West's net assets have a book value of $1,150,000 and a fair value of $1,390,000.The book value and the fair value of Coast's net assets on the date of combination are $400,000 and $550,000,respectively.Immediately following the combination,a consolidated balance sheet is prepared.
-Based on the information given above,at what amount will West's investment in Coast stock be reported in the consolidated balance sheet?

Accepted Answer

The answer of West,Inc.holds 100 percent of the common stock...

Question 4

Tanner Company,a subsidiary acquired for cash,owned equipment with a fair value higher than the book value as of the date of combination.A consolidated balance sheet prepared immediately after the acquisition would include this difference in:

Accepted Answer

When a subsidiary is acquired for cash, the purchase price is allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition. If the fair value of the acquired equipment is higher than its book value, the difference is recorded as a revaluation increase to the equipment account. Therefore, the consolidated balance sheet would include the equipment at its fair value, reflecting the revaluation increase. This increase is recorded as part of the equipment account, not separate deferred charges or retained earnings. Goodwill is only recognized when the purchase price exceeds the fair value of the identifiable net assets acquired.

Question 5

West,Inc.holds 100 percent of the common stock of Coast Company,an investment acquired for $680,000.Immediately following the combination,West's net assets have a book value of $1,150,000 and a fair value of $1,390,000.The book value and the fair value of Coast's net assets on the date of combination are $400,000 and $550,000,respectively.Immediately following the combination,a consolidated balance sheet is prepared.
-Based on the information given above,what will be the amount of net assets reported in the consolidated balance sheet,prepared immediately following the combination?

Accepted Answer

The answer of West,Inc.holds 100 percent of the common stock...

Question 6

Company X acquires 100 percent of the voting shares of Company Y for $275,000 on December 31,2008.The fair value of the net assets of Company X at the date of acquisition was $300,000.This is an example of a(n):

Accepted Answer

The acquisition cost of $275,000 is less than the fair value of the net assets acquired ($300,000), resulting in a bargain purchase.

Question 7

West,Inc.holds 100 percent of the common stock of Coast Company,an investment acquired for $680,000.Immediately following the combination,West's net assets have a book value of $1,150,000 and a fair value of $1,390,000.The book value and the fair value of Coast's net assets on the date of combination are $400,000 and $550,000,respectively.Immediately following the combination,a consolidated balance sheet is prepared.
-Based on the information given above,what will be the amount of total consolidated stockholders' equity be reported in the consolidated balance sheet prepared immediately following the combination?

Accepted Answer

The answer of West,Inc.holds 100 percent of the common stock...

Question 8

What portion of the balances of subsidiary stockholders' equity accounts are eliminated in preparing the consolidated balance sheet?

Accepted Answer

All of the balances of subsidiary stockholders' equity accounts, including common stock, additional paid-in capital, and retained earnings are eliminated in preparing the consolidated balance sheet. This is because the consolidated entity considers these accounts as one single entity rather than as separate subsidiaries.

Question 9

Lea Company acquired all of Tenzing Corporation's stock on January 1,2006 for $150,000 cash.On December 31,2008,the trial balances of the two companies were as follows:
Tenzing Corporation reported retained earnings of $75,000 at the date of acquisition.The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of five years from the date of acquisition.At December 31,2008,Tenzing owed Lea $4,000 for services provided.
 
-Based on the preceding information,what amount will be reported for total accounts payable in the consolidated balance sheet for the year 2008?

Accepted Answer

The consolidated balance sheet will report $56,000 for total accounts payable in 2008. This is because the accounts payable of the parent company ($40,000) and the accounts payable of the subsidiary company ($16,000) are combined in the consolidation process.

Question 10

Lea Company acquired all of Tenzing Corporation's stock on January 1,2006 for $150,000 cash.On December 31,2008,the trial balances of the two companies were as follows:
Tenzing Corporation reported retained earnings of $75,000 at the date of acquisition.The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of five years from the date of acquisition.At December 31,2008,Tenzing owed Lea $4,000 for services provided.
 
-Based on the preceding information,all of the following are eliminating entries required on December 31,2008,to prepare consolidated financial statements,except:

Accepted Answer

The eliminating entry to eliminate the investment account is not required because the investment is in a subsidiary, and the subsidiary's net assets are consolidated.

Question 11

Which of the following help explain the differences between the total debit and credit balances appearing on the balance sheet and those that appear in the workpaper?

Accepted Answer

Contra asset accounts can cause differences between the balances on the balance sheet and those in the workpaper because they offset asset accounts, affecting the net balance reported.

Question 12

On January 1,2009,Wilton Company acquired all of Sirius Company's common shares,for $365,000 cash.On that date,Sirius's balance sheet appeared as follows:
The fair values of all of Sirius's assets and liabilities were equal to their book values except for inventory that had a fair value of $85,000,land that had a fair value of $60,000,and buildings and equipment that had a fair value of $250,000.Buildings and equipment have a remaining useful life of 10 years with zero salvage value.Wilton Company decided to employ push-down accounting for the acquisition.Subsequent to the combination,Sirius continued to operate as a separate company.
 
-Based on the preceding information,what amount of differential will arise in the consolidation process?

Accepted Answer

The answer of On January 1,2009,Wilton Company acquired all of...

Question 13

Which of the following observations is NOT true?

Accepted Answer

Eliminating entries transfer the balance in the investment account to the consolidated statements, not remove the balance from the parent's books.

Question 14

Lea Company acquired all of Tenzing Corporation's stock on January 1,2006 for $150,000 cash.On December 31,2008,the trial balances of the two companies were as follows:
Tenzing Corporation reported retained earnings of $75,000 at the date of acquisition.The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of five years from the date of acquisition.At December 31,2008,Tenzing owed Lea $4,000 for services provided.
 
-Based on the preceding information,what amount will be reported as total assets in the consolidated balance sheet for 2008?

Accepted Answer

The answer of Lea Company acquired all of Tenzing Corporation's...

Question 15

Which of the following observations is NOT consistent with the use of push-down accounting?

Accepted Answer

Push-down accounting eliminates the need for differential-related eliminating entries in the consolidation process, as the subsidiary's financial statements already reflect the revalued amounts.

Question 16

When companies employ push-down accounting:

Accepted Answer

The answer of When companies employ push-down accounting:
...

Question 17

On January 1,2009,Wilton Company acquired all of Sirius Company's common shares,for $365,000 cash.On that date,Sirius's balance sheet appeared as follows:
The fair values of all of Sirius's assets and liabilities were equal to their book values except for inventory that had a fair value of $85,000,land that had a fair value of $60,000,and buildings and equipment that had a fair value of $250,000.Buildings and equipment have a remaining useful life of 10 years with zero salvage value.Wilton Company decided to employ push-down accounting for the acquisition.Subsequent to the combination,Sirius continued to operate as a separate company.
 
-Based on the preceding information,the write-up of buildings and equipment will:

Accepted Answer

The answer of On January 1,2009,Wilton Company acquired all of...

Question 18

Lea Company acquired all of Tenzing Corporation's stock on January 1,2006 for $150,000 cash.On December 31,2008,the trial balances of the two companies were as follows:
Tenzing Corporation reported retained earnings of $75,000 at the date of acquisition.The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of five years from the date of acquisition.At December 31,2008,Tenzing owed Lea $4,000 for services provided.
 
-Based on the preceding information,what amount of total retained earnings will be reported in the consolidated balance sheet for the year 2008?

Accepted Answer

The consolidated retained earnings will be $330,000. This is because the retained earnings of the parent company ($200,000) will be combined with the retained earnings of the subsidiary company ($130,000).

Question 19

On January 1,2009,Wilton Company acquired all of Sirius Company's common shares,for $365,000 cash.On that date,Sirius's balance sheet appeared as follows:
The fair values of all of Sirius's assets and liabilities were equal to their book values except for inventory that had a fair value of $85,000,land that had a fair value of $60,000,and buildings and equipment that had a fair value of $250,000.Buildings and equipment have a remaining useful life of 10 years with zero salvage value.Wilton Company decided to employ push-down accounting for the acquisition.Subsequent to the combination,Sirius continued to operate as a separate company.
 
-Based on the preceding information,what amount will be present in the revaluation capital account,when eliminating entries are prepared?

Accepted Answer

To prepare eliminating entries under push-down accounting, the fair value adjustments to the acquired company's assets and liabilities need to be reflected in the financial statements. In this case, the inventory, land, and buildings and equipment are revalued to fair value, resulting in a net increase in the asset balance of $395,000 ($85,000 + $60,000 + $250,000).

Under push-down accounting, the revaluation surplus is created to reflect the increase in the asset balance. The revaluation surplus will be equal to the net fair value adjustment of the assets, which is $395,000 in this case.

However, the question specifically asks for the amount in the revaluation capital account. In push-down accounting, the revaluation surplus flows through the income statement and is allocated to the shareholders' equity. The amount allocated to the share capital is known as the revaluation capital account.

Since the acquired company's financial statements are restated under push-down accounting, the revaluation surplus is included in the equity section of the consolidated balance sheet. Therefore, the correct answer is B) $65,000, which is the revaluation surplus amount allocated to the share capital assuming the share capital balance was $300,000 (365,000 - 65,000).

Question 20

Which term refers to the practice of revaluing an acquired subsidiary's assets and liabilities to their fair values directly on that subsidiary's books at the date of acquisition?

Accepted Answer

Push-down accounting refers to the practice of revaluing an acquired subsidiary's assets and liabilities to their fair values directly on that subsidiary's books at the date of acquisition. This is different from fair value accounting, which involves revaluing assets and liabilities of the entire company to their fair values, and fully adjusted method, which involves adjusting only the parent company's books to reflect the acquisition. Reciprocal ownership refers to a situation where two companies own a percentage of each other's stocks.

Quiz 4: Consolidation of Wholly Owned Subsidiaries

Tanner Company,a subsidiary acquired for cash,owned equipment with a fair value higher than the book value as of the date of combination.A consolidated balance sheet prepared immediately after the acquisition would include this difference in:

Company X acquires 100 percent of the voting shares of Company Y for $275,000 on December 31,2008.The fair value of the net assets of Company X at the date of acquisition was $300,000.This is an example of a(n) :

What portion of the balances of subsidiary stockholders' equity accounts are eliminated in preparing the consolidated balance sheet?

Which of the following help explain the differences between the total debit and credit balances appearing on the balance sheet and those that appear in the workpaper?

Which of the following observations is NOT true?

Which of the following observations is NOT consistent with the use of push-down accounting?

When companies employ push-down accounting:

Which term refers to the practice of revaluing an acquired subsidiary's assets and liabilities to their fair values directly on that subsidiary's books at the date of acquisition?