Question 1

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: $\begin{array}{lrrr}&2010&2011&2012\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ 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

Pell records income from Demers by taking 80% of Demers' net income for 2012, which is $130,000. This equals $104,000 (0.80 * $130,000).

Question 2

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

Goodwill impairment loss of $50,000 should be deducted from the original goodwill of $200,000. Therefore, the consolidated goodwill for 2013 would be $150,000.

Question 3

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: $\begin{array}{lrrr}&2010&2011&2012\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the partial equity method is applied.
-Compute the noncontrolling interest in the net income of Demers at December 31, 2012.

Accepted Answer

The noncontrolling interest in net income is calculated as 20% of Demers' net income, adjusted for the amortization of the undervalued assets. For 2012, this is 20% of ($130,000 - $7,000 amortization) = $24,600.

Question 4

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 5

What is preacquisition income?

Accepted Answer

The answer of What is preacquisition income?...

Question 6

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

Accepted Answer

The answer of How does a parent company account for...

Question 7

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...

Question 8

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

Accepted Answer

Under U.S. GAAP, the measurement of a noncontrolling interest is based on acquisition-date fair value, while under IFRS, both acquisition-date fair value and the acquiree's identifiable net asset fair value measurement are allowed, with an option for the latter.

Question 9

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 10

Where should a noncontrolling interest appear on a consolidated balance sheet?

Accepted Answer

The answer of Where should a noncontrolling interest appear on...

Question 11

Where may a noncontrolling interest be presented in a consolidated balance sheet?

Accepted Answer

The answer of Where may a noncontrolling interest be presented...

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: $\begin{array}{lrrr}&2010&2011&2012\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the partial equity method is applied.
-Compute the noncontrolling interest in the net income of Demers at December 31, 2010.

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: $\begin{array}{lrrr}&2010&2011&2012\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the partial equity method is applied.
-Compute the noncontrolling interest in Demers at December 31, 2010.

Accepted Answer

The noncontrolling interest at December 31, 2010, is calculated as 20% of Demers' equity at that date. Demers' equity includes the initial common stock and retained earnings, adjusted for undervaluation of assets, net income, and dividends. The calculation is: $300,000 (common stock) + $210,000 (retained earnings) + $30,000 (equipment undervaluation) + $40,000 (building undervaluation) + $100,000 (net income) - $40,000 (dividends) = $640,000. 20% of $640,000 is $128,000. Adding the share of the undervaluation adjustments ($30,000 + $40,000) * 20% = $14,000, the total is $128,000 + $14,000 = $142,000. However, the correct choice is $135,600, which suggests an adjustment or error in the calculation or provided options.

Question 14

Alonzo Co. acquired 60% of Beazley Corp. by paying $240,000 cash. There is no active trading market for Beazley Corp. At the time of the acquisition, the book value of Beazley's net assets was $300,000.
Required:
What amount should have been assigned to the noncontrolling interest immediately after the combination?

Accepted Answer

The answer of Alonzo Co. acquired 60% of Beazley Corp....

Question 15

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: $\begin{array}{lrrr}&2010&2011&2012\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the partial equity method is applied.
-Compute the noncontrolling interest in the net income of Demers at December 31, 2011.

Accepted Answer

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

Question 16

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: $\begin{array}{lrrr}&2010&2011&2012\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the partial equity method is applied.
-Compute the noncontrolling interest in Demers at December 31, 2012.

Accepted Answer

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

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: $\begin{array}{lrrr}&2010&2011&2012\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ 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 18

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

Accepted Answer

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

Question 19

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: $\begin{array}{lrrr}&2010&2011&2012\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the partial equity method is applied.
-Compute the noncontrolling interest in Demers at December 31, 2011.

Accepted Answer

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

Question 20

How is a noncontrolling interest in the net income of an entity reported in the income statement?

Accepted Answer

The answer of How is a noncontrolling interest in the...

Quiz 4: Consolidated Financial Statements and Outside Ownership

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?

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?

What is preacquisition income?

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

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?

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?

Where should a noncontrolling interest appear on a consolidated balance sheet?

Where may a noncontrolling interest be presented in a consolidated balance sheet?

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

How is a noncontrolling interest in the net income of an entity reported in the income statement?