Question 1

Parrett Corp.acquired one hundred percent of Jones Inc.on January 1, 2016, at a price in excess of the subsidiary's fair value.On that date, Parrett's equipment (ten-year life) had a book value of $360,000 but a fair value of $480,000.Jones had equipment (ten-year life) with a book value of $240,000 and a fair value of $350,000.Parrett used the partial equity method to record its investment in Jones.On December 31, 2018, Parrett had equipment with a book value of $250,000 and a fair value of $400,000.Jones had equipment with a book value of $170,000 and a fair value of $320,000.What is the consolidated balance for the Equipment account as of December 31, 2018?
A) $387,000.
B) $497,000.
C) $508.000.
D) $537,000.
E) $570,000.

Accepted Answer

B

Question 2

What is the amount of consolidated net income for the year 2017?
A) $3,180,000.
B) $3,612,000.
C) $3,300,000.
D) $3,588,000.
E) $3,420,000.

Accepted Answer

The consolidated net income for the year 2017 can be determined by adding the net income of Parent Company and its subsidiaries. From the given financial statements, we can see that the net income of Parent Company is $2,420,000 and the net income of its subsidiaries is $1,168,000. Therefore, the consolidated net income for the year 2017 is $2,420,000 + $1,168,000 = $3,588,000. The correct answer is D.

Question 3

On the consolidated financial statements for 2017, what amount should have been shown for consolidated dividends?
A) $ 900,000.
B) $1,020,000.
C) $ 876,000.
D) $ 996,000.
E) $ 948,000.

Accepted Answer

The consolidated dividends should reflect the dividends declared by the parent company only, as dividends declared by subsidiaries are eliminated in consolidation.

Question 4

How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the initial value method of internal recordkeeping?
A) $190,000.
B) $360,000.
C) $164,000.
D) $354,000.
E) $150,000.

Accepted Answer

The answer of How much difference would there have been...

Question 5

Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination?
A) Goodwill.
B) Equipment.
C) Investment in Subsidiary.
D) Common Stock.
E) Additional Paid-In Capital.

Accepted Answer

The "Investment in Subsidiary" account is eliminated in the consolidation process because the parent company's investment is replaced by the subsidiary's assets and liabilities in the consolidated financial statements.

Question 6

If Cale Corp.had net income of $444,000 in 2017, exclusive of the investment, what is the amount of consolidated net income?
A) $569,000.
B) $570,000.
C) $571,000.
D) $566,400.
E) $444,000.

Accepted Answer

The answer of If Cale Corp.had net income of $444,000...

Question 7

Under the partial equity method, the parent recognizes income when
A) Dividends are received from the investee.
B) Dividends are declared by the investee.
C) The related expense has been incurred.
D) The related contract is signed by the subsidiary.
E) It is earned by the subsidiary.

Accepted Answer

Under the partial equity method, the parent recognizes income when it is earned by the subsidiary. This is because the parent only owns a portion of the investee and is therefore only entitled to recognize a portion of the investee's earnings. Dividends received or declared do not necessarily reflect the subsidiary's earnings and may include other items such as distributions of capital or accumulated profits. The related expense being incurred or the contract being signed by the subsidiary are also not relevant to recognizing income under the partial equity method.

Question 8

Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment?
A) The amount of consolidated net income.
B) Total assets on the consolidated balance sheet.
C) Total liabilities on the consolidated balance sheet.
D) The balance in the investment account on the parent's books.
E) The amount of consolidated cost of goods sold.

Accepted Answer

The balance in the investment account on the parent's books varies between the equity, initial value, and partial equity methods of accounting for an investment. In the equity method, the investment account balance changes based on the parent company's share of the investee's net income or loss. In the initial value method, the investment account balance remains constant unless there is a change in ownership percentage. In the partial equity method, the investment account balance changes based on the parent's share of the investee's profits or losses, but only up to the amount of the initial investment.

Question 9

The 2017 total excess amortization of fair-value allocations is calculated to be
A) $4,000.
B) $6,400.
C) ($2,400).
D) ($1,000).
E) $3,800.

Accepted Answer

The answer of The 2017 total excess amortization of fair-value...

Question 10

On the consolidated financial statements for 2017, what amount should have been shown for Equity in Subsidiary Earnings?
A) $432,000.
B) $ -0-
C) $408,000.
D) $120,000.
E) $288,000.

Accepted Answer

There is no information provided in the question about the earnings of the subsidiary, so the correct answer is $-0- for Equity in Subsidiary Earnings.

Question 11

Jansen Inc.acquired all of the outstanding common stock of Merriam Co.on January 1, 2017, for $257,000.Annual amortization of $19,000 resulted from this acquisition.Jansen reported net income of $70,000 in 2017 and $50,000 in 2018 and paid $22,000 in dividends each year.Merriam reported net income of $40,000 in 2017 and $47,000 in 2018 and paid $10,000 in dividends each year.What is the Investment in Merriam Co.balance on Jansen's books as of December 31, 2018, if the equity method has been applied?
A) $286,000.
B) $295,000.
C) $276,000.
D) $344,000.
E) $324,000.

Accepted Answer

The correct answer is A.The Investment in Merriam Co. balance on Jansen's books as of December 31, 2018, if the equity method has been applied is $286,000. This is calculated as follows:Beginning balance: $257,000Add: Share of Merriam's net income (2017: $40,000 x 100%, 2018: $47,000 x 100%): $87,000Less: Share of Merriam's dividends (2017: $10,000 x 100%, 2018: $10,000 x 100%): $20,000Less: Amortization of excess fair value over book value: $38,000Ending balance: $286,000

Question 12

How does the partial equity method differ from the equity method?
A) In the total assets reported on the consolidated balance sheet.
B) In the treatment of dividends.
C) In the total liabilities reported on the consolidated balance sheet.
D) Under the partial equity method, subsidiary income does not increase the balance in the parent's investment account.
E) Under the partial equity method, the balance in the investment account is not decreased by amortization on allocations made in the acquisition of the subsidiary.

Accepted Answer

The answer of How does the partial equity method differ...

Question 13

What is the balance in Cale's investment in subsidiary account at the end of 2017?
A) $1,099,000.
B) $1,020,000.
C) $1,096,200.
D) $1,098,000.
E) $1,144,400.

Accepted Answer

The balance in Cale's investment in subsidiary account at the end of 2017 is $1,099,000.

Question 14

Racer Corp.acquired all of the common stock of Tangiers Co.in 2016.Tangiers maintained its incorporation.Which of Racer's account balances would vary between the equity method and the initial value method?
A) Goodwill, Investment in Tangiers Co., and Retained Earnings.
B) Expenses, Investment in Tangiers Co., and Equity in Subsidiary Earnings.
C) Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings.
D) Common Stock, Goodwill, and Investment in Tangiers Co.
E) Expenses, Goodwill, and Investment in Tangiers Co.

Accepted Answer

The account balances that vary between the equity method and the initial value method are Investment in Tangiers Co., Equity in Subsidiary Earnings, and Retained Earnings. Goodwill does not vary between the two methods as it is only recorded under the initial value method, and expenses and common stock are not affected by either method.

Question 15

How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the partial equity method of internal recordkeeping?
A) $170,000.
B) $354,000.
C) $164,000.
D) $ 6,000.
E) $174,000.

Accepted Answer

The difference in Franel's income between using the equity method and the partial equity method would be $6,000, as the partial equity method typically results in a smaller adjustment to income compared to the full equity method.

Question 16

An impairment model is used
A) To assess whether asset write-downs are appropriate for indefinite-lived assets.
B) To calculate the fair value of intangible assets.
C) To calculate the amortization of indefinite-lived assets over their useful lives.
D) To determine whether the fair value of assets should be recognized.
E) To determine the likelihood that the fair value of an assumed liability will increase.

Accepted Answer

An impairment model is used to assess whether asset write-downs are appropriate for indefinite-lived assets. This model compares the carrying value of the asset to its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. If the carrying value exceeds the recoverable amount, an impairment loss is recognized.

Question 17

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?
A) Initial value or book value.
B) Initial value, lower-of-cost-or-market-value, or equity.
C) Initial value, equity, or partial equity.
D) Initial value, equity, or book value.
E) Initial value, lower-of-cost-or-market-value, or partial equity.

Accepted Answer

The answer of Which of the following internal record-keeping methods...

Question 18

Which of the following is not an example of an intangible asset?
A) Customer list
B) Database
C) Lease agreement
D) Broken equipment
E) Trademark

Accepted Answer

Intangible assets are assets that lack physical substance and cannot be touched, such as patents, trademarks, copyrights, and goodwill. Broken equipment, on the other hand, is a physical tangible asset.

Question 19

At the end of 2017, the consolidation entry to eliminate Cale's accrual of Kaltop's earnings would include a credit to Investment in Kaltop Co.for
A) $124,400.
B) $126,000.
C) $127,000.
D) $ 76,400.
E) $ 0.

Accepted Answer

The consolidation entry to eliminate Cale's accrual of Kaltop's earnings would include a debit to Kaltop's retained earnings for $127,000 and a credit to Investment in Kaltop Co. for $127,000, which is the amount of Kaltop's earnings that had been accrued by Cale. Therefore the correct answer is C.

Question 20

In Cale's accounting records, what amount would appear on December 31, 2017 for equity in subsidiary earnings?
A) $77,000.
B) $79,000.
C) $125,000.
D) $127,000.
E) $81,800.

Accepted Answer

The answer of In Cale's accounting records, what amount would...

Quiz 3: Consolidations - Subsequent to the Date of Acquisition

What is the amount of consolidated net income for the year 2017?

On the consolidated financial statements for 2017, what amount should have been shown for consolidated dividends?

How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the initial value method of internal recordkeeping?

Which one of the following accounts would not appear in the consolidated financial statements at the end of the first fiscal period of the combination?

If Cale Corp.had net income of $444,000 in 2017, exclusive of the investment, what is the amount of consolidated net income?

Under the partial equity method, the parent recognizes income when

Which one of the following varies between the equity, initial value, and partial equity methods of accounting for an investment?

The 2017 total excess amortization of fair-value allocations is calculated to be

On the consolidated financial statements for 2017, what amount should have been shown for Equity in Subsidiary Earnings?

How does the partial equity method differ from the equity method?

What is the balance in Cale's investment in subsidiary account at the end of 2017?

Racer Corp.acquired all of the common stock of Tangiers Co.in 2016.Tangiers maintained its incorporation.Which of Racer's account balances would vary between the equity method and the initial value method?

How much difference would there have been in Franel's income with regard to the effect of the investment, between using the equity method or using the partial equity method of internal recordkeeping?

An impairment model is used

Which of the following internal record-keeping methods can a parent choose to account for a subsidiary acquired in a business combination?

Which of the following is not an example of an intangible asset?

At the end of 2017, the consolidation entry to eliminate Cale's accrual of Kaltop's earnings would include a credit to Investment in Kaltop Co.for

In Cale's accounting records, what amount would appear on December 31, 2017 for equity in subsidiary earnings?