Question 1

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 2

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. 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: $\begin{array}{lrrr}&2014&2015&2016\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the PARTIAL EQUITY method is applied.
Compute the non-controlling interest in the net income of Demers at December 31, 2014.
A)$20,000.
B)$12,000.
C)$18,600.
D)$10,600.
E)$14,400.

Accepted Answer

The non-controlling interest in the net income of Demers at December 31, 2014, is $18,600. This is calculated as follows:Net income for 2014: $100,000Multiply by non-controlling interest percentage: 20%Non-controlling interest in net income: $18,600

Question 3

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. 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: $\begin{array}{lrrr}&2014&2015&2016\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the PARTIAL EQUITY method is applied.
Compute the non-controlling interest in Demers at December 31, 2014.
A)$135,600.
B)$114,000.
C)$112,000.
D)$100,000.
E)$110,600.

Accepted Answer

The non-controlling interest is equal to the fair value of the non-controlling interest at the date of acquisition, which is $100,000 (20% x $500,000). This amount is then adjusted for the share of Demers' net income and dividends since the date of acquisition. Demers' net income for 2014 is $100,000, so the non-controlling interest's share is $20,000 (20% x $100,000). Demers' dividends for 2014 are $40,000, so the non-controlling interest's share is $8,000 (20% x $40,000). Therefore, the non-controlling interest at December 31, 2014 is $112,000 ($100,000 + $20,000 - $8,000).

Question 4

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. 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: $\begin{array}{lrrr}&2014&2015&2016\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the PARTIAL EQUITY method is applied.
Compute the non-controlling interest in Demers at December 31, 2016.
A)$107,800.
B)$140,000.
C)$80,000.
D)$160,800.
E)$146,800.

Accepted Answer

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

Question 5

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?
A)U.S. GAAP requires acquisition-date fair value measurement and IFRS requires the acquiree's identifiable net asset fair value measurement.
B)U.S. GAAP and IFRS both require acquisition-date fair value measurement.
C)U.S. GAAP and IFRS both require the acquiree's identifiable net asset fair value measurement.
D)U.S. GAAP requires acquisition-date fair value measurement, but IFRS allows an option for acquisition-date fair value measurement.
E)U.S. GAAP and IFRS both apportion goodwill to the parent only.

Accepted Answer

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

Question 6

What is preacquisition income?

Accepted Answer

The answer of What is preacquisition income?...

Question 7

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 8

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. 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: $\begin{array}{lrrr}&2014&2015&2016\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the PARTIAL EQUITY method is applied.
Compute the non-controlling interest in the net income of Demers at December 31, 2015.
A)$18,400.
B)$14,000.
C)$22,600.
D)$24,000.
E)$12,600.

Accepted Answer

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

Question 9

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. 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: $\begin{array}{lrrr}&2014&2015&2016\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the PARTIAL EQUITY method is applied.
How much does Pell record as income from Demers for the year ended December 31, 2015?
A)$90,400.
B)$89,000.
C)$50,400.
D)$96,000.
E)$56,000.

Accepted Answer

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

Question 10

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. 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: $\begin{array}{lrrr}&2014&2015&2016\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the PARTIAL EQUITY method is applied.
Compute the non-controlling interest in Demers at December 31, 2015.
A)$124,000.
B)$126,000.
C)$109,200.
D)$149,600.
E)$148,200.

Accepted Answer

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

Question 11

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 12

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

Accepted Answer

The answer of Where should a non-controlling interest appear on...

Question 13

Parsons Company acquired 90% of Roxy Company several years ago and recorded goodwill of $200,000 at that date. During 2015 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 2015?
A)$150,000.
B)$200,000.
C)$50,000.
D)$0.
E)$135,000.

Accepted Answer

(Recorded Goodwill $200,000) - (2015 Goodwill Impairment $50,000) = $150,000 Reported Goodwill for 2015

Question 14

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. 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: $\begin{array}{lrrr}&2014&2015&2016\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the PARTIAL EQUITY method is applied.
How much does Pell record as income from Demers for the year ended December 31, 2016?
A)$98,400.
B)$56,000.
C)$104,000.
D)$97,000.
E)$50,400.

Accepted Answer

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

Question 15

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. 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: $\begin{array}{lrrr}&2014&2015&2016\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the PARTIAL EQUITY method is applied.
How much does Pell record as Income from Demers for the year ended December 31, 2014?
A)$80,000.
B)$74,400.
C)$73,000.
D)$42,400.
E)$41,000.

Accepted Answer

Income from Demers for the year ended December 31, 2014, is $80,000. This is calculated as 80% of Demers' net income for the year, which is $100,000.

Question 16

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

Accepted Answer

The answer of Where may a non-controlling interest be presented...

Question 17

Parsons Company acquired 90% of Roxy Company several years ago and recorded goodwill of $200,000 at that date. During 2015 an analysis of the fair value of Roxy's assets determined an impairment of goodwill in the amount of $50,000. What journal entry would be made by Parsons regarding the impairment of goodwill?
 
A) Journal entry A.
B) Journal entry B.
C) Journal entry C.
D) Journal entry D.
E) Journal entry E.

Accepted Answer

According to the information provided, Parsons Company acquired 90% of Roxy Company and recorded goodwill of $200,000 at that date. During 2015, an analysis of the fair value of Roxy's assets determined an impairment of goodwill in the amount of $50,000. To record the impairment of goodwill, Parsons would debit the impairment loss account for $50,000 and credit the goodwill account for $50,000. Therefore, the journal entry to record the impairment of goodwill would be:
Impairment loss  $50,000
Goodwill   $50,000
Choice C represents this journal entry.

Question 18

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 19

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. 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: $\begin{array}{lrrr}&2014&2015&2016\
\text { Net income } & \$ 100,000 & \$ 120,000 & \$ 130,000 \
\text { Dividends } & 40,000 & 50,000 & 60,000
\end{array}$ Assume the PARTIAL EQUITY method is applied.
Compute the non-controlling interest in the net income of Demers at December 31, 2016.
A)$20,400.
B)$26,000.
C)$24,600.
D)$14,000.
E)$12,600.

Accepted Answer

The non-controlling interest (NCI) in net income is calculated as 20% (100% - 80% ownership by Pell) of Demers' net income, adjusted for the amortization of the undervalued assets. For 2016, the net income is $130,000. The annual amortization for equipment and buildings is $3,000 ($30,000/10) and $4,000 ($40,000/10), respectively. The total amortization is $7,000. Thus, the adjusted net income is $130,000 - $7,000 = $123,000. The NCI is 20% of $123,000, which is $24,600.

Question 20

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....

Quiz 4: Consolidated Financial Statements and Outside Ownership

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?

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?

What is preacquisition income?

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

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 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 2015 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 2015?

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

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

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?