Question 1

A) Nil.
B) $6,000.
C) $8,000.
D) $12,000.

Accepted Answer

The answer of 
A) Nil.
B) $6,000.
C) $8,000.
D) $12,000....

Question 2

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares):  Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. The amount of goodwill appearing on the December 31, 2012 Consolidated Balance Sheet would be:
A) Nil.
B) $10,000.
C) $20,000.
D) $30,000.

Accepted Answer

The answer of Whine purchased 80% of the outstanding voting...

Question 3

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares):  Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. What would be the gain or loss arising from Dine's share issue to Chompster?
A) A loss of $4,000.
B) A loss of $2,400.
C) A gain of $2,400.
D) A gain of $4,000.

Accepted Answer

The answer of Whine purchased 80% of the outstanding voting...

Question 4

A) Nil.
B) $6,000.
C) $18,000.
D) $36,000.

Accepted Answer

The answer of 
A) Nil.
B) $6,000.
C) $18,000.
D) $36,000....

Question 5

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares):  Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. What would be the amount of cash appearing on Whine's December 31, 2012 Consolidated Balance Sheet (after the issue of shares to Chompster)?
A) $450,000.
B) $610,000.
C) $850,000.
D) $810,000.

Accepted Answer

The answer of Whine purchased 80% of the outstanding voting...

Question 6

All intercompany investments are accounted for using the equity method. The Net Incomes for these companies for the year ended December 31, 2012 were as follows:  Unrealized intercompany profits (pre-tax) earned by the various companies for the year ended December 31, 2012 are shown below:  All companies are subject to a 25% tax rate. How much is A Inc.'s Consolidated Net Income for 2012?
A) $1,510,000.
B) $1,773,625.
C) $1,796,125.
D) $2,170,000.

Accepted Answer

The answer of  All intercompany investments are accounted for...

Question 7

On January 1, 2012, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common stock and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair market value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2013, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair market values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date. Marvin's net Income and dividends for 2012 and 2013 are as follows:  Marvin's goodwill suffered an impairment loss of $5,000 during 2012. Hanson Inc. uses the equity method to account for its investment in Marvin Inc. What would be the balance in Hanson's investment in Marvin account on December 31, 2013?
A) $303,000.
B) $347,900.
C) $348,925.
D) $349,950.

Accepted Answer

The answer of On January 1, 2012, Hanson Inc. purchased...

Question 8

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares):  Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. The amount of common shares appearing on the December 31, 2012 Consolidated Balance Sheet would be:
A) $500,000.
B) $660,000.
C) $770,000.
D) $860,000.

Accepted Answer

The answer of Whine purchased 80% of the outstanding voting...

Question 9

Assuming that A acquired a controlling interest in B through numerous small acquisitions, what would be appropriate accounting with respect to these acquisitions?
A) An acquisition differential must be computed following each purchase.
B) The equity method must be adopted retroactively once 20% ownership is obtained.
C) The purchases should all be grouped together and treated as a single block purchase.
D) The cost method should be used until a controlling interest is acquired.

Accepted Answer

When a controlling interest is acquired through numerous small acquisitions, the purchases should all be grouped together and treated as a single block purchase, according to the business combination accounting rules. This means the assets and liabilities of the acquired company should be recorded at fair value on the acquisition date, and any excess of consideration paid over the fair value of the identifiable net assets should be recognized as goodwill. It is not necessary to compute an acquisition differential after each purchase, use the equity method retroactively, or use the cost method, as these methods are not appropriate for accounting for a controlling interest acquisition through multiple small purchases.

Question 10

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. chapters) the shares):  Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. What would be the amount of the unamortized acquisition differential on December 31, 2012?
A) $40,000.
B) $50,000.
C) $80,000.
D) $125,000.

Accepted Answer

The answer of Whine purchased 80% of the outstanding voting...

Question 11

A) Nil.
B) $80,000.
C) $295,200.
D) $370,200.

Accepted Answer

The answer of 
A) Nil.
B) $80,000.
C) $295,200.
D) $370,200....

Question 12

On January 1, 2012, Hanson Inc. purchased 54,000 voting shares out of Marvin Inc.'s 90,000 outstanding voting shares for $240,000. On that date, Marvin's common stock and retained earnings were valued at $60,000 and $90,000, respectively. Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment, which was estimated to have a fair market value that was $50,000 in excess of its recorded book value. The equipment was estimated to have a useful life of eight years. Both companies use straight line amortization exclusively. On January 1, 2013, Hanson purchased an additional 9,000 shares of Marvin Inc. on the open market for $45,000. On this date, Marvin's book values were equal to its fair market values with the exception of the company's equipment, which is now thought to be undervalued by $60,000. Moreover, the equipment's estimated useful life was revised to 5 years on this date. Marvin's net Income and dividends for 2012 and 2013 are as follows:  Marvin's goodwill suffered an impairment loss of $5,000 during 2012. Hanson Inc. uses the equity method to account for its investment in Marvin Inc. What effect would the purchase at January 1, 2013 have on the consolidated equity of Hanson?
A) There would be no effect.
B) There would be a reduction in consolidated retained earnings of $1,025.
C) There would be a reduction in consolidated contributed surplus of $1,025.
D) There would be an increase in consolidated retained earnings of $1,025.

Accepted Answer

The answer of On January 1, 2012, Hanson Inc. purchased...

Question 13

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares):  Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. What would be the amount of the non-controlling interest appearing on Whine's Consolidated Balance Sheet as at December 31, 2012 after the issue of shares to Chompster?
A) $125,000.
B) $222,000.
C) $264,000.
D) $282,600.

Accepted Answer

The answer of Whine purchased 80% of the outstanding voting...

Question 14

The following information pertains to the shareholdings of an affiliated group of companies. The respective ownership interest of each company is outlined below.  All intercompany investments are accounted for using the equity method. The Net Incomes for these companies for the year ended December 31, 2012 were as follows:  Unrealized intercompany profits (pre-tax) earned by the various companies for the year ended December 31, 2012 are shown below:  All companies are subject to a 25% tax rate. What is the Consolidated Net Income for the year attributable to the shareholders of A Inc.?
A) $1,510,000.
B) $1,796,125.
C) $1,817,500.
D) $2,170,000.

Accepted Answer

The answer of The following information pertains to the shareholdings...

Question 15

The following information pertains to the shareholdings of an affiliated group of companies. The respective ownership interest of each company is outlined below.  All intercompany investments are accounted for using the equity method. The Net Incomes for these companies for the year ended December 31, 2012 were as follows:  Unrealized intercompany profits (pre-tax) earned by the various companies for the year ended December 31, 2012 are shown below:  All companies are subject to a 25% tax rate. How much is the non-controlling interest in A Inc.'s Consolidated Net Income for 2012?
A) Nil.
B) $382,500.
C) $373,875.
D) $400,000.

Accepted Answer

The answer of The following information pertains to the shareholdings...

Question 16

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares):  Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. The amount of retained earnings appearing on the December 31, 2012 Consolidated Balance Sheet would be:
A) $384,000.
B) $396,000.
C) $400,000.
D) $402,400.

Accepted Answer

The answer of Whine purchased 80% of the outstanding voting...

Question 17

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. chapters) the shares):  Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. What would be the amount of the non-controlling interest appearing on Whine's Consolidated Balance Sheet as at December 31, 2012 before the issue of shares to Chompster?
A) $125,000.
B) $160,000.
C) $222,000.
D) $264,000.

Accepted Answer

The answer of Whine purchased 80% of the outstanding voting...

Question 18

Whine purchased 80% of the outstanding voting shares of Dine Inc. on December 31, 2012. The Balance Sheets of both companies on that date are shown below (after Whine acquired the shares):  Also on December 31, 2012 (after the financial statements appearing above had been prepared) Chompster Inc., one of Whine's main competitors has agreed to acquire an equity interest in Dine Inc. As a result of the agreement, Dine Inc. would issue another 8,000 shares (over and above the 32,000 shares it currently has outstanding) to Chompster for $20 per share. The acquisition differential on the date of acquisition was attributed entirely to equipment, which had a remaining useful life of ten years from the date of acquisition. Whine Inc. uses the equity method to account for its investment in Dine Inc. There were no unrealized intercompany profits on December 31, 2012. What would be Whine's ownership interest in Dine following Chompster's purchase of shares in Dine?
A) 60%
B) 64%
C) 75%
D) 80%

Accepted Answer

The answer of Whine purchased 80% of the outstanding voting...

Question 19

A) Nil.
B) $6,000.
C) $18,000.
D) $36,000.

Accepted Answer

The answer of 
A) Nil.
B) $6,000.
C) $18,000.
D) $36,000....

Question 20

A) Nil.
B) $6,000.
C) $18,000.
D) $36,000.

Accepted Answer

The answer of 
A) Nil.
B) $6,000.
C) $18,000.
D) $36,000....

Quiz 8: Consolidated Cash Flows and Changes in Ownership

Assuming that A acquired a controlling interest in B through numerous small acquisitions, what would be appropriate accounting with respect to these acquisitions?