Deck 3: The Reporting Entity and Consolidation of Less-Than-Wholly-Owned Subsidiaries With No Differentials

Question 1

On January 3, 20X9, Redding Company acquired 80 percent of Frazer Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Frazer's assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Frazer. The stockholders' equity accounts of the two companies at the acquisition date are:
Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income statement for 20X9.
Based on the preceding information,what is the total stockholders' equity in the consolidated balance sheet as of January 3,20X9?

A) $1,580,000
B) $1,064,000
C) $1,150,000
D) $1,236,000

Answer 1

D

Question 2

Consolidated financial statements tend to be most useful for:

A) Creditors of a consolidated subsidiary.
B) Investors and long-term creditors of the parent company.
C) Short-term creditors of the parent company.
D) Stockholders of a consolidated subsidiary.

Answer 2

B

Question 3

On January 3, 20X9, Redding Company acquired 80 percent of Frazer Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Frazer's assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Frazer. The stockholders' equity accounts of the two companies at the acquisition date are:
Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income statement for 20X9.
Based on the preceding information,what amount will be assigned to the noncontrolling interest on January 3,20X9,in the consolidated balance sheet?

A) $86,000
B) $44,000
C) $68,800
D) $50,000

Answer 3

A

Question 4

On January 2, 20X2, Kentucky Company acquired 70% of Bluegrass Corporation's common stock for $420,000 cash. At the acquisition date, the book values and fair values of Bluegrass' assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 30% of the total book value of Bluegrass. The stockholders' equity accounts of the two companies at the acquisition date are as follows:
Noncontrolling interest was assigned income of $15,000 in Kentucky's consolidated income statement for 20X2.
Based on the preceding information,what amount will be assigned to noncontrolling interest on January 2,20X2,in the consolidated balance sheet?

A) $120,000
B) $126,000
C) $180,000
D) $420,000

Question 5

On January 2, 20X2, Kentucky Company acquired 70% of Bluegrass Corporation's common stock for $420,000 cash. At the acquisition date, the book values and fair values of Bluegrass' assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 30% of the total book value of Bluegrass. The stockholders' equity accounts of the two companies at the acquisition date are as follows:
Noncontrolling interest was assigned income of $15,000 in Kentucky's consolidated income statement for 20X2.
Based on the preceding information,what is the total stockholders' equity in the consolidated balance sheet as of January 2,20X2?

A) $1,120,000
B) $1,300,000
C) $1,480,000
D) $1,900,000

Question 6

Xing Corporation owns 80 percent of the voting common shares of Adams Corporation.Noncontrolling interest was assigned $24,000 of income in the 20X9 consolidated income statement.What amount of net income did Adams Corporation report for the year?

A) $150,000
B) $96,000
C) $120,000
D) $30,000

Question 7

On January 3, 20X9, Jane Company acquired 75 percent of Miller Company's outstanding common stock for cash. The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Miller Company's net assets at the date of acquisition. Selected balance sheet data at December 31, 20X9, are as follows:

Based on the preceding information,what amount will Jane Company report as common stock outstanding in its consolidated balance sheet at December 31,20X9?

A) $120,000
B) $180,000
C) $156,000
D) $264,000

Question 8

On January 1, 20X6, Joseph Company acquired 80% of Salt Company's outstanding stock for cash. The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Salt Company's net assets at the date of acquisition. Selected balance sheet data at December 31, 20X6 are as follows:

Based on the preceding information,what amount will Joseph Company report as common stock outstanding in its consolidated balance sheet at December 31,20X6?

A) $214,000
B) $150,000
C) $184,000
D) $230,000

Question 9

On January 3, 20X9, Redding Company acquired 80 percent of Frazer Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Frazer's assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Frazer. The stockholders' equity accounts of the two companies at the acquisition date are:
Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income statement for 20X9.
Based on the preceding information,what will be the amount of net income reported by Frazer Corporation in 20X9?

A) $44,000
B) $55,000
C) $66,000
D) $36,000

Question 10

On January 1, 20X8, Wilhelm Corporation acquired 90 percent of Kaiser Company's voting stock, at underlying book value. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity method in accounting for its ownership of Kaiser. On December 31, 20X9, the trial balances of the two companies are as follows:

Based on the preceding information,what amount would be reported as total liabilities in the consolidated balance sheet at December 31,20X9?

A) $330,000
B) $712,000
C) $318,000
D) $130,000

Question 11

On January 1, 20X8, Wilhelm Corporation acquired 90 percent of Kaiser Company's voting stock, at underlying book value. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity method in accounting for its ownership of Kaiser. On December 31, 20X9, the trial balances of the two companies are as follows:

Based on the preceding information,what amount would be reported as total assets in the consolidated balance sheet at December 31,20X9?

A) $805,000
B) $712,000
C) $742,000
D) $1,102,000

Question 12

On January 3, 20X9, Jane Company acquired 75 percent of Miller Company's outstanding common stock for cash. The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Miller Company's net assets at the date of acquisition. Selected balance sheet data at December 31, 20X9, are as follows:

Based on the preceding information,what amount should be reported as noncontrolling interest in net assets in Jane Company's December 31,20X9,consolidated balance sheet?

A) $90,000
B) $54,000
C) $36,000
D) $0

Question 13

On January 2, 20X2, Kentucky Company acquired 70% of Bluegrass Corporation's common stock for $420,000 cash. At the acquisition date, the book values and fair values of Bluegrass' assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 30% of the total book value of Bluegrass. The stockholders' equity accounts of the two companies at the acquisition date are as follows:
Noncontrolling interest was assigned income of $15,000 in Kentucky's consolidated income statement for 20X2.
Based on the preceding information,what will be the amount of net income reported by Bluegrass Corporation in 20X2?

A) $45,000
B) $50,000
C) $75,000
D) $105,000

Question 14

Zeta Corporation and its subsidiary reported consolidated net income of $320,000 for the year ended December 31,20X8.Zeta owns 80 percent of the common shares of its subsidiary,acquired at book value.Noncontrolling interest was assigned income of $30,000 in the consolidated income statement for 20X8.What is the amount of separate operating income reported by Zeta for the year?

A) $170,000
B) $150,000
C) $120,000
D) $200,000

Question 15

Maple Corporation and its subsidiary reported consolidated net income of $380,000 for the year ended December 31,20X5.Maple owns 75% of the common shares of its subsidiary,acquired at book value.Noncontrolling interest was assigned income of $25,000 in the consolidated income statement for 20X5.What is the amount of separate operating income reported by Maple for the year?

A) $95,000
B) $100,000
C) $280,000
D) $285,000

Question 16

Orange Corporation owns 70 percent of the voting common shares of McNichols Corporation,purchased at book value.Noncontrolling interest was assigned $21,000 of income in the 20X0 consolidated income statement.What amount of net income did McNichols Corporation report for the year?

A) $70,000
B) $63,000
C) $30,000
D) $147,000

Question 17

On January 1, 20X6, Joseph Company acquired 80% of Salt Company's outstanding stock for cash. The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Salt Company's net assets at the date of acquisition. Selected balance sheet data at December 31, 20X6 are as follows:

Based on the preceding information,what amount should be reported as noncontrolling interest in net assets in Joseph Company's December 31,20X6,consolidated balance sheet?

A) $35,200
B) $48,200
C) $76,800
D) $112,800

Question 18

Company Pea owns 90 percent of Company Essone which in turn owns 80 percent of Company Esstwo.Company Esstwo owns 100 percent of Company Essthree.Consolidated financial statements should be prepared to report the financial status and results of operations for:

A) Pea.
B) Pea plus Essone.
C) Pea plus Essone plus Esstwo.
D) Pea plus Essone plus Esstwo plus Essthree.

Question 19

On January 1,20X8,Zeta Company acquired 85 percent of Theta Company's common stock for $100,000 cash.The fair value of the noncontrolling interest was determined to be 15 percent of the book value of Theta at that date.What portion of the retained earnings reported in the consolidated balance sheet prepared immediately after the business combination is assigned to the noncontrolling interest?

A) None
B) 15 percent
C) 100 percent
D) Cannot be determined

Question 20

In which of the following cases would consolidation be inappropriate?

A) The subsidiary is in bankruptcy.
B) Subsidiary's operations are dissimilar from those of the parent.
C) The parent owns 90 percent of the subsidiary's common stock, but all of the subsidiary's nonvoting preferred stock is held by a single investor.
D) Subsidiary is foreign.

Question 21

Quid Corporation acquired 75 percent of Pro Company's common stock on December 31,20X6.Goodwill (attributable to Quid's acquisition of Pro shares)of $300,000 was reported in the consolidated financial statements at December 31,20X6.Parent company approach was used in determining this amount.What is the amount of goodwill to be reported under proprietary theory approach?

A) $300,000
B) $400,000
C) $150,000
D) $100,000

Question 22

On January 1, 20X8, Wilhelm Corporation acquired 90 percent of Kaiser Company's voting stock, at underlying book value. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity method in accounting for its ownership of Kaiser. On December 31, 20X9, the trial balances of the two companies are as follows:

Based on the preceding information,what amount would be reported as total stockholder's equity in the consolidated balance sheet at December 31,20X9?

A) $412,000
B) $394,000
C) $542,000
D) $348,000

Question 23

All of the following statements accurately describe Special Purpose Entities (SPEs)except for:

A) SPEs are corporations, trust or partnerships created for a single specified purpose.
B) SPEs usually have no substantive operations and are used for financing operations.
C) SPEs are used for asset securitization, risk sharing and taking advantage of tax statues.
D) A variable interest entity (VIE) is a type of SPE with a limited number of equity investors.

Question 24

On January 1, 20X9, Heathcliff Corporation acquired 80 percent of Garfield Corporation's voting common stock. Garfield's buildings and equipment had a book value of $300,000 and a fair value of $350,000 at the time of acquisition.
Based on the preceding information,what will be the amount at which Garfield's buildings and equipment will be reported in consolidated statements using the parent company approach?

A) $350,000
B) $340,000
C) $280,000
D) $300,000

Question 25

Pepper Company acquired 60 percent of the common stock of Safton Corporation on December 31,20X9.On the date of acquisition,Pepper held land with a book value of $200,000 and a fair value of $350,000; Safton held land with a book value of $150,000 and fair value of $300,000.At what amount would land be reported in a consolidated balance sheet prepared immediately after the combination?

A) $290,000
B) $500,000
C) $590,000
D) $650,000

Question 26

Quid Corporation acquired 60 percent of Pro Company's common stock on December 31,20X4.Goodwill (attributable to Quid's acquisition of Pro shares)of $150,000 was calculated under the proprietary theory approach.What is the amount of goodwill that should be reported under entity theory approach?

A) $150,000
B) $200,000
C) $250,000
D) $100,000

Question 27

Under ASC 805,consolidation follows largely which theory approach?

A) Proprietary
B) Parent company
C) Entity
D) Variable

Question 28

On December 31,20X9,Rudd Company acquired 80 percent of the common stock of Wilton Company.At the time,Rudd held land with a book value of $100,000 and a fair value of $260,000; Wilton held land with a book value of $50,000 and fair value of $600,000.Using the parent company theory,at what amount would land be reported in a consolidated balance sheet prepared immediately after the combination?

A) $550,000
B) $590,000
C) $700,000
D) $860,000

Question 29

Which of the following usually does not represent a variable interest?

A) Common stock, with no special features or provisions
B) Senior debt
C) Subordinated debt
D) Loan or asset guarantees

Question 30

For a less-than-wholly-owned subsidiary,goodwill under the parent theory:

A) exceeds goodwill under the proprietary theory.
B) exceeds goodwill under the entity theory.
C) is less than goodwill under the entity theory.
D) is less than goodwill under the proprietary theory.

Question 31

Silver Company owns 60 percent of the common stock of Gold Corporation.During the year,Silver reported sales of $500,000,and Gold reported sales of $200,000,including sales to Silver of $50,000.The amount of sales that should be reported in the consolidated income statement for the year is

A) $500,000
B) $650,000
C) $700,000
D) $750,000

Question 32

Small-Town Retail owns 70 percent of Supplier Corporation's common stock. For the current financial year, Small-Town and Supplier reported sales of $450,000 and $300,000 and expenses of $290,000 and $240,000, respectively.
Based on the preceding information,what is the amount of net income to be reported in the consolidated income statement for the year under the entity theory approach?

A) $210,000
B) $202,000
C) $160,000
D) $220,000

Question 33

For which of the following reporting units is the preparation of combined financial statements most appropriate?

A) A corporation and a foreign subsidiary with nonintegrated homogeneous operations.
B) A corporation and a majority-owned subsidiary with nonhomogeneous operations.
C) Several corporations with related operations owned by one individual.
D) Several corporations with related operations with some common individual owners.

Question 34

On January 1, 20X8, Wilhelm Corporation acquired 90 percent of Kaiser Company's voting stock, at underlying book value. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity method in accounting for its ownership of Kaiser. On December 31, 20X9, the trial balances of the two companies are as follows:

Based on the preceding information,what amount would be reported as income to controlling interest in the consolidated financial statements for 20X9?

A) $168,000
B) $138,000
C) $164,000
D) $150,000

Question 35

Blue Company owns 80 percent of the common stock of White Corporation.During the year,Blue reported sales of $1,000,000,and White reported sales of $500,000,including sales to Blue of $80,000.The amount of sales that should be reported in the consolidated income statement for the year is:

A) $500,000.
B) $1,300,000.
C) $1,420,000.
D) $1,500,000.

Question 36

Small-Town Retail owns 70 percent of Supplier Corporation's common stock. For the current financial year, Small-Town and Supplier reported sales of $450,000 and $300,000 and expenses of $290,000 and $240,000, respectively.
Based on the preceding information,what is the amount of net income to be reported in the consolidated income statement for the year under the proprietary theory approach?

A) $210,000
B) $202,000
C) $160,000
D) $200,000

Question 37

On January 1, 20X8, Wilhelm Corporation acquired 90 percent of Kaiser Company's voting stock, at underlying book value. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity method in accounting for its ownership of Kaiser. On December 31, 20X9, the trial balances of the two companies are as follows:

Based on the preceding information,what amount would be reported as retained earnings in the consolidated balance sheet prepared at December 31,20X9?

A) 314,000
B) 294,000
C) 150,000
D) 424,000

Question 38

Princeton Company acquired 75 percent of the common stock of Sheffield Corporation on December 31,20X9.On the date of acquisition,Princeton held land with a book value of $150,000 and a fair value of $300,000; Sheffield held land with a book value of $100,000 and fair value of $500,000.Using the entity theory,at what amount would land be reported in a consolidated balance sheet prepared immediately after the combination?

A) $650,000
B) $500,000
C) $550,000
D) $375,000

Question 39

On January 1, 20X8, Wilhelm Corporation acquired 90 percent of Kaiser Company's voting stock, at underlying book value. The fair value of the noncontrolling interest was equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity method in accounting for its ownership of Kaiser. On December 31, 20X9, the trial balances of the two companies are as follows:

Based on the preceding information,what amount would be reported as noncontrolling interest in the consolidated balance sheet at December 31,20X9?

A) $27,000
B) $4,000
C) $15,000
D) $18,000

Question 40

Small-Town Retail owns 70 percent of Supplier Corporation's common stock. For the current financial year, Small-Town and Supplier reported sales of $450,000 and $300,000 and expenses of $290,000 and $240,000, respectively.
Based on the preceding information,what is the amount of net income to be reported in the consolidated income statement for the year under the parent company theory approach?

A) $220,000
B) $202,000
C) $160,000
D) $200,000

Question 41

On January 1,20X8,Gregory Corporation acquired 90 percent of Nova Company's voting stock,at underlying book value.The fair value of the noncontrolling interest was equal to 10 percent of the book value of Nova at that date.Gregory uses the equity method in accounting for its ownership of Nova.On December 31,20X8,the trial balances of the two companies are as follows:

Required:
1)Provide all consolidating entries required as of December 31,20X8,to prepare consolidated financial statements.
2)Prepare a three-part consolidation worksheet.
Problem 48 (continued):

Question 42

Consolidated financial statements are required by GAAP in certain circumstances.This information can be very useful to stockholders and creditors.Yet,there are limitations to these financial statements for which the users must be aware.What are at least three (3)limitations of consolidated financial statements?

Question 43

On January 1,20X8,Gregory Corporation acquired 90 percent of Nova Company's voting stock,at underlying book value.The fair value of the noncontrolling interest was equal to 10 percent of the book value of Nova at that date.Gregory uses the equity method in accounting for its ownership of Nova.On December 31,20X9,the trial balances of the two companies are as follows:

Required:
1)Give all consolidating entries required on December 31,20X8,to prepare consolidated financial statements.
2)Prepare a three-part consolidation worksheet as of December 31,20X8.
Problem 49 (continued):

Question 44

Cosby Corporation acquired 60 percent of Huxtable Corporation's voting common stock.Huxtable's buildings and equipment had a book value of $200,000 and a fair value of $250,000 at the time of the acquisition.What will be the amount at which Huxtable's buildings and equipment will be reported in consolidated statements on the acquisition date?

A) $150,000
B) $200,000
C) $230,000
D) $250,000

Question 45

ASC 805 is related to the Consolidation of Variable Interest Entities.Describe what a Variable Interest Entity is and discuss why the FASB has difficulty in prescribing when these entities are consolidated?

Question 46

On January 1,20X9,Gold Rush Company acquires 80 percent ownership in California Corporation for $200,000.The fair value of the noncontrolling interest at that time is determined to be $50,000.It reports net assets with a book value of $200,000 and fair value of $230,000.Gold Rush Company reports net assets with a book value of $600,000 and a fair value of $650,000 at that time,excluding its investment in California.What will be the amount of goodwill that would be reported immediately after the combination under current accounting practice?

A) $50,000
B) $30,000
C) $40,000
D) $20,000

Question 47

On January 1, 20X9, Heathcliff Corporation acquired 80 percent of Garfield Corporation's voting common stock. Garfield's buildings and equipment had a book value of $300,000 and a fair value of $350,000 at the time of acquisition.
Based on the preceding information,what will be the amount at which Garfield's buildings and equipment will be reported in consolidated statements using the current accounting practice?

A) $350,000
B) $340,000
C) $280,000
D) $300,000

Question 48

In reading a set of consolidated financial statements you are surprised to see the term noncontrolling interest not reported under the Liability section of the Balance Sheet.
Required:
a.What is a non-controlling interest?
b.Why must it be reported in the financial statements as an element of equity rather than a liability?

Question 49

On January 1,20X5,Seaside Company acquires 90 percent ownership in Rainbow Corporation for $180,000.The fair value of the noncontrolling interest at that time is determined to be $20,000.Rainbow reports net assets with a book value of $160,000 and fair value of $175,000.Seaside Company reports net assets with a book value of $480,000 and a fair value of $525,000 at that time,excluding its investment in Rainbow.What will be the amount of goodwill that would be reported immediately after the combination?

A) $5,000
B) $20,000
C) $25,000
D) $40,000

Question 50

Parent Company acquired 90% of Son Inc.on January 31,20X2 in exchange for cash.The book value of Son's individual assets and liabilities approximated their acquisition-date fair values.On the date of acquisition,Son reported the following:

During the year Son Inc.reported $310,000 in net income and declared $15,000 in dividends.Parent Company reported $520,000 in net income and declared $25,000 in dividends.Parent accounts for their investment using the equity method.
Required:
1)What journal entry will Parent make on the date of acquisition to record the investment in Son Inc.?
2)If Parent were to prepare a consolidated balance sheet on the acquisition date (January 31,20X2),what is the basic consolidation entry Parent would use in the consolidation worksheet?
3)What is Parent's balance in "Investment in Son Inc." prior to consolidation on December 31,20X2?
4)What is the basic consolidation entry Parent would use in the consolidation worksheet on December 31,20X2?
Problem 47 (continued):