Question 1

Prevatt, Inc. owns 80% of Franklin Company. During the current year, a portion of the investment in Franklin is sold. Prior to recording the sale, Prevatt adjusts the carrying value of its investment. What is the purpose of the adjustment?

Accepted Answer

The answer of Prevatt, Inc. owns 80% of Franklin Company....

Question 2

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life.
Demers earns income and pays dividends as follows:

Assume the partial equity method is applied.
How much does Pell record as income from Demers for the year ended December 31, 2012?

Accepted Answer

The answer of Pell Company acquires 80% of Demers Company...

Question 3

Where should a non-controlling interest appear on a consolidated balance sheet?

Accepted Answer

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Question 4

Parsons Company acquired 90% of Roxy Company several years ago and recorded goodwill of $200,000 at that date. During 2013 an analysis of the fair value of Roxy's assets determined an impairment of goodwill in the amount of $50,000.
At what amount would consolidated goodwill be reported for 2013?

Accepted Answer

When there is an impairment of goodwill, the consolidated goodwill balance is reduced by the amount of the impairment. In this case, the impairment is $50,000, so the consolidated goodwill balance would be $150,000 ($200,000 - $50,000).

Question 5

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life.
Demers earns income and pays dividends as follows:

Assume the partial equity method is applied.
How much does Pell record as income from Demers for the year ended December 31, 2011?

Accepted Answer

The answer of Pell Company acquires 80% of Demers Company...

Question 6

In comparing U.S. GAAP and international financial reporting standards (IFRS) with regard to a basis for measurement of a non-controlling interest, which of the following is true?

Accepted Answer

The answer of In comparing U.S. GAAP and international financial...

Question 7

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life.
Demers earns income and pays dividends as follows:

Assume the partial equity method is applied.
How much does Pell record as Income from Demers for the year ended December 31, 2010?

Accepted Answer

The answer of Pell Company acquires 80% of Demers Company...

Question 8

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life.
Demers earns income and pays dividends as follows:

Assume the partial equity method is applied.
Compute the non-controlling interest in the net income of Demers at December 31, 2010.

Accepted Answer

Non-controlling interest in net income of Demers = (20% x Net Income of Demers) - (20% x Dividends paid by Demers)
Net Income of Demers = Revenue - Expenses - Depreciation
Depreciation expense = (30,000 + 40,000) / 10 = $7,000
Net Income of Demers = $210,000 + $100,000 - $80,000 - $7,000 = $223,000
Dividends paid by Demers = $60,000
Non-controlling interest = (20% x $223,000) - (20% x $60,000) = $18,600.

Question 9

Where may a non-controlling interest be presented in a consolidated balance sheet?

Accepted Answer

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Question 10

What is preacquisition income?

Accepted Answer

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Question 11

How does a parent company account for the sale of a portion of an investment in a subsidiary?

Accepted Answer

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Question 12

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life.
Demers earns income and pays dividends as follows:

Assume the partial equity method is applied.
Compute the non-controlling interest in Demers at December 31, 2011.

Accepted Answer

The answer of Pell Company acquires 80% of Demers Company...

Question 13

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life.
Demers earns income and pays dividends as follows:

Assume the partial equity method is applied.
Compute the non-controlling interest in the net income of Demers at December 31, 2012.

Accepted Answer

We need to first calculate the fair value of Demers Company's identifiable net assets:

Common stock: $300,000
Retained earnings: $210,000
Equipment (undervalued by $30,000): $270,000
Buildings (undervalued by $40,000): $360,000

Fair value of identifiable net assets = $1,140,000

Next, we need to calculate goodwill:

Consideration transferred: $500,000
Fair value of identifiable net assets: $1,140,000

Goodwill = $500,000 - $1,140,000 = -$640,000

Since the excess consideration transferred was greater than the fair value of identifiable net assets, we have negative goodwill.

Now we can calculate Pell Company's investment in Demers Company:

Consideration transferred: $500,000
Fair value of identifiable net assets: $1,140,000
Excess consideration transferred over fair value: -$640,000

Pell Company's investment in Demers Company = $500,000 - $640,000 = -$140,000

Since Pell Company acquired 80% of Demers Company, we will use the partial equity method to record its share of Demers' income and dividends.

Demers' income and dividends for the years 2010-2012 are as follows:

2010 income: $90,000
2011 income: $100,000
2012 income: $120,000
2010 dividends: $30,000
2011 dividends: $40,000
2012 dividends: $50,000

To calculate the non-controlling interest in the net income of Demers at December 31, 2012, we need to first calculate Pell Company's share of Demers' income for each year:

2010 share: 80% x $90,000 = $72,000
2011 share: 80% x $100,000 = $80,000
2012 share: 80% x $120,000 = $96,000

Next, we need to calculate the total dividends paid by Demers over the three years:

Total dividends: $30,000 + $40,000 + $50,000 = $120,000

Finally, we can calculate the non-controlling interest in the net income of Demers at December 31, 2012:

Non-controlling interest = 20% x (Pell Company's share of net income - total dividends)
Non-controlling interest = 20% x ($96,000 - $120,000)
Non-controlling interest = 20% x (-$24,000)
Non-controlling interest = -$4,800

Therefore, the non-controlling interest in the net income of Demers at December 31, 2012 is $24,600 (Option C).

Question 14

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life.
Demers earns income and pays dividends as follows:

Assume the partial equity method is applied.
Compute the non-controlling interest in the net income of Demers at December 31, 2011.

Accepted Answer

The answer of Pell Company acquires 80% of Demers Company...

Question 15

How is a non-controlling interest in the net income of an entity reported in the income statement?

Accepted Answer

The answer of How is a non-controlling interest in the...

Question 16

One company buys a controlling interest in another company on April 1. How should the preacquisition subsidiary revenues and expenses be handled in the consolidated balances for the year of acquisition?

Accepted Answer

The answer of One company buys a controlling interest in...

Question 17

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life.
Demers earns income and pays dividends as follows:

Assume the partial equity method is applied.
Compute the non-controlling interest in Demers at December 31, 2010.

Accepted Answer

The answer of Pell Company acquires 80% of Demers Company...

Question 18

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2010. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life.
Demers earns income and pays dividends as follows:

Assume the partial equity method is applied.
Compute the non-controlling interest in Demers at December 31, 2012.

Accepted Answer

The answer of Pell Company acquires 80% of Demers Company...

Question 19

How would you determine the amount of goodwill to be recognized at date of acquisition when there is a non-controlling interest present?

Accepted Answer

The answer of How would you determine the amount of...

Question 20

Beta Corp. owns less than one hundred percent of the voting common stock of Shedds Co. Under what conditions will Beta be required to prepare consolidated financial statements?

Accepted Answer

The answer of Beta Corp. owns less than one hundred...

Quiz 4: Consolidated Financial Statements and Outside Ownership

Prevatt, Inc. owns 80% of Franklin Company. During the current year, a portion of the investment in Franklin is sold. Prior to recording the sale, Prevatt adjusts the carrying value of its investment. What is the purpose of the adjustment?

Where should a non-controlling interest appear on a consolidated balance sheet?

Parsons Company acquired 90% of Roxy Company several years ago and recorded goodwill of $200,000 at that date. During 2013 an analysis of the fair value of Roxy's assets determined an impairment of goodwill in the amount of $50,000. At what amount would consolidated goodwill be reported for 2013?

In comparing U.S. GAAP and international financial reporting standards (IFRS) with regard to a basis for measurement of a non-controlling interest, which of the following is true?

Where may a non-controlling interest be presented in a consolidated balance sheet?

What is preacquisition income?

How does a parent company account for the sale of a portion of an investment in a subsidiary?

How is a non-controlling interest in the net income of an entity reported in the income statement?

One company buys a controlling interest in another company on April 1. How should the preacquisition subsidiary revenues and expenses be handled in the consolidated balances for the year of acquisition?

How would you determine the amount of goodwill to be recognized at date of acquisition when there is a non-controlling interest present?

Beta Corp. owns less than one hundred percent of the voting common stock of Shedds Co. Under what conditions will Beta be required to prepare consolidated financial statements?