Chapter 4 Exam 2

31 Questions | Total Attempts: 320

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Questions and Answers
  • 1. 
    1.  For business combinations involving less than 100 percent ownership, the acquirer recognizes and          measures all of the following at the acquisition date except:
    • A. 

      A) Identifiable assets acquired, at fair value.

    • B. 

      B) Liabilities assumed, at book value.

    • C. 

      C) Non-controlling interest, at fair value.

    • D. 

      D) Goodwill, or a gain from bargain purchase.

    • E. 

      E) None of these choices is correct.

  • 2. 
    2-  When Jolt Co. acquired 75% of the common stock of Yelts Corp., Yelts owned land with a book value       of $70,000 and a fair value of $100,000.       What amount should have been reported for the land in a consolidated balance sheet at the acquisition           date?
    • A. 

      A) $ 52,500.

    • B. 

      B) $ 70,000.    

    • C. 

      C) $ 75,000.

    • D. 

      D) $ 92,500.

    • E. 

      E) $100,000.                             

  • 3. 
    3.   Which of the following methods is not used to value a noncontrolling interest under circumstances       where a control premium is applied to determine the appropriate value for such interest?
    • A. 

      A) Valuation models based on subsidiary discounted cash flows.

    • B. 

      B) Valuation models based on subsidiary residual income projections.

    • C. 

      C) Comparison with comparable investments.

    • D. 

      D) The application of a safe harbor discount rate.

    • E. 

      E) Fair value based on market trades.

  • 4. 
    4.  Perch Co. acquired 80% of the common stock of Float Corp. for $1,600,000.  The fair value of Float's         net assets was $1,850,000, and the book value was $1,500,000.  The noncontrolling interest shares of      Float Corp. are not actively traded.    What is the total amount of goodwill recognized at the date of      acquisition?
    • A. 

      A) $150,000.

    • B. 

      B) $250,000.

    • C. 

      C) $            0.

    • D. 

      D) $120,000.

    • E. 

      E) $170,000.    

  • 5. 
    5. Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 2019.  During     2019, Harbor had revenues of $2,500,000 and expenses of $2,000,000.  The amortization of fair value     allocations totaled $60,000 in 2019. Not including its investment in Harbor, Femur Co. had its own     revenues of $4,500,000 and expenses of $3,000,000 for the year 2019.     The noncontrolling interest's share of the earnings of Harbor Corp. for 2019 is calculated to be
    • A. 

      A) $132,000.

    • B. 

      B) $150,000.

    • C. 

      C) $168,000.

    • D. 

      D) $160,000.

    • E. 

      E) $0.

  • 6. 
    6- Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 2019.  For 2019,     Kailey reported revenues of $810,000 and expenses of $630,000, not including its investment in         Denber, and all reflected evenly throughout the year.  The annual amount of amortization related to this     acquisition was $15,000.      In consolidation, the total amount of expenses related to Kailey, and to Denber’s acquisition of Kailey,          for 2019 is determined to be
    • A. 

      A) $153,750.

    • B. 

      B) $161,250.

    • C. 

      C) $205,000.

    • D. 

      D) $210,000.

    • E. 

      E) $215,000.

  • 7. 
    7- MacHeath Inc. bought 60% of the outstanding common stock of Nomes Inc. in an acquisition that      resulted in the recognition of goodwill.  Nomes owned a piece of land that cost $250,000 but was      worth $600,000 at the date of acquisition.  What value would be attributed to this land in a      consolidated balance sheet at the date of acquisition?
    • A. 

                 A) $250,000.

    • B. 

      B) $150,000.

    • C. 

      C) $600,000.        

    • D. 

      D) $360,000.

    • E. 

      E) $460,000.

  • 8. 
    8-  Kordel Inc. acquired 75% of the outstanding common stock of Raxston Corp.  Raxston currently owes      Kordel $500,000 for inventory acquired over the past few months.  In preparing consolidated financial      statements, what amount of Raxston’s liability should be eliminated?
    • A. 

      A) $375,000

    • B. 

      B) $125,000

    • C. 

      C) $300,000

    • D. 

      D) $500,000        

    • E. 

      E) $0.

  • 9. 
    9- Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2019 when Park's book value was     $560,000.  The Royce stock was not actively traded.  On the date of acquisition, Park had equipment     (with a ten-year life) that was undervalued in the financial records by $140,000.  One year later, the     two companies provided the selected amounts shown below. Additionally, no dividends have been     paid. What amount of consolidated net income for 2020 is attributable to Royce’s controlling interest?
    • A. 

      A) $686,000.

    • B. 

      B) $560,000.

    • C. 

      C) $644,000.

    • D. 

      D) $635,600.

    • E. 

      E) $691,600.

  • 10. 
    10- On January 1, 2019, Palk Corp. and Spraz Corp. had condensed balance sheets as follows: On January 2, 2019, Palk borrowed the entire $84,000 it needed to acquire 80% of the outstanding common shares of Spraz.  Shares of Spraz are not actively traded on the market. The loan was to be paid in ten equal annual principal payments, plus interest, beginning December 31, 2019.  The excess consideration transferred over the underlying book value of the acquired net assets was allocated 60% to inventory and 40% to goodwill.               What amount represents consolidated current assets at January 2, 2019?
    • A. 

      A) $127,000.

    • B. 

      B) $129,800.

    • C. 

      C) $143,800.

    • D. 

      D) $148,000.

    • E. 

      E) $135,400.

  • 11. 
    11- When a parent uses the equity method throughout the year to account for its 80% investment in an       acquired subsidiary, which of the following statements is false at the date immediately preceding the       date on which adjustments are made on the consolidated worksheet?
    • A. 

      A) Parent company net income equals controlling interest in consolidated net income.

    • B. 

      B) Parent company retained earnings equals consolidated retained earnings.

    • C. 

      C) Parent company total assets equals consolidated total assets.

    • D. 

      D) Parent company dividends equals consolidated dividends.

    • E. 

      E) Goodwill is not recorded on the parent’s books.

  • 12. 
    12-  When a parent uses the initial value method throughout the year to account for its 80% investment in        an acquired subsidiary, which of the following statements is true at the date immediately preceding        the date on which adjustments are made on the consolidated worksheet?
    • A. 

      A) Parent company net income equals consolidated net income.

    • B. 

      B) Parent company retained earnings equals consolidated retained earnings.

    • C. 

      C) Parent company total assets equals consolidated total assets.

    • D. 

      D) Parent company dividends equal consolidated dividends.

    • E. 

      E) Goodwill is recorded on the parent’s books.

  • 13. 
    13.  In a step acquisition, which of the following statements is false?
    • A. 

      A) The acquisition method views a step acquisition essentially the same as a single step acquisition.

    • B. 

      B) Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year.

    • C. 

      C) Income from subsidiary is computed for the entire year for a new purchase acquired during the year.

    • D. 

      D) Obtaining control through a step acquisition is a significant measurement event.

    • E. 

      E) Pre-acquisition earnings are not included in the consolidated income statement.

  • 14. 
    14-  Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing        common stock?
    • A. 

      A) The parent recognizes a larger percent of subsidiary income.

    • B. 

      B) A step acquisition resulting in control may result in a parent recognizing a gain on revaluation.

    • C. 

      C) The book value of the subsidiary will increase.

    • D. 

      D) The parent's percent ownership in subsidiary will increase.

    • E. 

      E) Noncontrolling interest in subsidiary's net income will decrease.

  • 15. 
    15-  When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following        statements is true?
    • A. 

      Income from subsidiary is not recognized until there is an entire year of consolidated  operations.

    • B. 

      B) Income from subsidiary is recognized from date of acquisition to year-end.

    • C. 

      C) Excess cost over acquisition value is recognized at the beginning of the fiscal year.

    • D. 

      D) No goodwill can be recognized.

    • E. 

      E) Income from subsidiary is recognized for the entire year.

  • 16. 
    16-  When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year,         which of the following statements is true of the subsidiary with respect to the presentation of         consolidated financial statement information?
    • A. 

      A) Pre-acquisition earnings are deducted from consolidated revenues and expenses.

    • B. 

      B) Pre-acquisition earnings are added to consolidated revenues and expenses.

    • C. 

      C) Pre-acquisition earnings are deducted from the beginning consolidated stockholders' equity.

    • D. 

      D) Pre-acquisition earnings are added to the beginning consolidated stockholders' equity.

    • E. 

      E) Pre-acquisition earnings are ignored in the consolidated income statement.

  • 17. 
    17- All of the following statements regarding the sale of subsidiary shares are true except which of the        following?
    • A. 

      A) The use of specific identification based on serial number is acceptable.

    • B. 

      B) The use of the FIFO assumption is acceptable.

    • C. 

      C) The use of the averaging assumption is acceptable.

    • D. 

      D) The use of specific LIFO assumption is acceptable.

    • E. 

      E) The parent company must determine whether consolidation is still appropriate for the remaining shares owned.

  • 18. 
    18-  Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on September 1, 2019,        and an additional 10% on January 1, 2020. Total annual amortization of $6,000 relates to the first        acquisition. George reports the following figures for 2020:      Revenues   $500,000      Expenses 400,000      Retained earnings, 1/1/20 300,000      Dividends paid 50,000      Common stock 200,000     Without regard for this investment, Keefe independently earns $300,000 in net income during 2020.     All net income is earned evenly throughout the year.      What is the controlling interest in consolidated net income for 2020?
    • A. 

      A) $380,000.

    • B. 

      B) $375,200.

    • C. 

      C) $375,800.

    • D. 

      D) $376,000.

    • E. 

      E) $400,000.

  • 19. 
    19- McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash.            This amount is reflective of Hogan’s total acquisition-date fair value.  Hogan's stockholders' equity       consisted of common stock of $160,000 and retained earnings of $80,000.  An analysis of Hogan's net       assets revealed the following: Any excess consideration transferred over fair value is attributable to an unamortized patent with a            useful life of 5 years.  The acquisition value attributable to the noncontrolling interest at January 1,         2019 is:
    • A. 

      A) $23,400.

    • B. 

      B) $24,000.

    • C. 

      C) $24,900.

    • D. 

      D) $26,000.                         

    • E. 

      E) $20,000.

  • 20. 
    20-  Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019.  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.  Based on an annual review, goodwill has not been impaired. Demers earns income        and pays dividends as follows: Assume the equity method is applied. Compute Pell's Investment in Demers account balance at        December 31, 2019.
    • A. 

      A) $580,000.

    • B. 

      B) $574,400.

    • C. 

      C) $548,000.

    • D. 

      D) $542,400.

    • E. 

      E) $541,000.

  • 21. 
    21- Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019.  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.  Based on an annual review, goodwill has not been impaired. Demers earns income       and pays dividends as follows: Assume the initial value method is applied.  Compute Pell's investment in Demers at December            31, 2019.
    • A. 

      A) $500,000.           

    • B. 

      B) $574,400.

    • C. 

      C) $625,000.

    • D. 

      D) $542,400.

    • E. 

      E) $532,000.

  • 22. 
    22-  Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019.  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.  Based on an annual review, goodwill has not been impaired.        Demers earns income and pays dividends as follows:        Assume the partial equity method is applied.  Compute Pell's investment in Demers at December 31,        2019.
    • A. 

      A) $625,000.

    • B. 

      B) $574,400.

    • C. 

      C) $548,000.

    • D. 

      D) $542,400.

    • E. 

      E) $532,000.

  • 23. 
    23-   Parsons Company acquired 90% of Roxy Company several years ago for which the consideration         transferred included an amount paid for goodwill of $200,000 at that date.  During 2020 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 2020?
    • A. 

      A) $150,000

    • B. 

      B) $200,000.

    • C. 

      C) $  50,000.

    • D. 

      D) $           0.

    • E. 

      E) $135,000.

  • 24. 
    24- 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?
    • A. 

      A) U.S. GAAP requires acquisition-date fair value measurement and IFRS requires the acquiree’s identifiable net asset fair value measurement.

    • B. 

      B) U.S. GAAP and IFRS both require acquisition-date fair value measurement.

    • C. 

      C) U.S. GAAP and IFRS both require the acquiree’s identifiable net asset fair value measurement

    • D. 

      D) U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement

    • E. 

      E) U.S. GAAP and IFRS both apportion goodwill to the parent only.

  • 25. 
    25- On January 1, 2011, Punch Corporation purchased 80% of the common stock of Soopy Co. Separate        balance sheet data for the companies at the acquisition date(after the acquisition) are given below: At the date of the acquisition, the book values of Soopy's net assets were equal to the fair value except for Soopy's inventory, which had a fair value of $60,000. Determine below what the consolidated balance would be for each of the requested accounts. What amount of Inventory will be reported?
    • A. 

      A) $170,000

    • B. 

      B) $169,000

    • C. 

      C) $186,500

    • D. 

      D) $192,000

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