Question 1

Avery Company acquires Billings Company in a combination accounted for as an acquisition and adopts the equity method to account for Investment in Billings.At the end of four years, the Investment in Billings account on Avery's books is $198,984.What items constitute this balance?

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Question 2

What is the partial equity method? How does it differ from the equity method? What are its advantages and disadvantages compared to the equity method?

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Question 3

Paperless Co.acquired Sheetless Co.and in effecting this business combination, there was a cash-flow performance contingency to be paid in cash, and a market-price performance contingency to be paid in additional shares of stock.In what accounts and in what section(s) of a consolidated balance sheet are these contingent consideration items shown?

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Question 4

If Watkins pays $300,000 in cash for Glen, at what amount would the subsidiary's Building be represented in a January 2, 2017 consolidation?
A) $200,000.
B) $225,000.
C) $273,000.
D) $279,000.
E) $300,000.

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Question 5

A business combination results in $90,000 of goodwill.Several years later a worksheet is being produced to consolidate the two companies.Describe in words at what amount goodwill will be reported at this date.

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Question 6

When is a goodwill impairment loss recognized?
A) Only after both a quantitative and qualitative assessment of the fair value of goodwill of a reporting unit.
B) After only definitive quantitative assessments of the fair value of goodwill is completed.
C) After only definitive qualitative assessments of the fair value of goodwill is completed.
D) If the fair value of a reporting unit falls to zero or below its original acquisition price.
E) Never.

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A)...

Question 7

Dutch Co.has loaned $90,000 to its subsidiary, Hans Corp., which retains separate incorporation.How would this loan be treated on a consolidated balance sheet?

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Question 8

If Watkins pays $450,000 in cash for Glen, what acquisition-date fair value allocation, net of amortization, should be attributed to the subsidiary's Equipment in consolidation at December 31, 2019?
A) ($5,000).
B) $80,000.
C) $75,000.
D) $73,500.
E) ($3,500).

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Question 9

From which methods can a parent choose for its internal recordkeeping related to the operations of a subsidiary?

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Question 10

For recognized intangible assets that are considered to possess indefinite lives, what is the accounting treatment for purposes of income recognition?

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Question 11

If Watkins pays $450,000 in cash for Glen, what amount would be represented as the subsidiary's Equipment in a consolidation at December 31, 2019, assuming the book value of the equipment at that date is still $80,000?
A) $70,000.
B) $73,500.
C) $75,000.
D) $76,500.
E) $80,000.

Accepted Answer

The consolidation entry would be:Debit: Investment in Glen $450,000Credit: Cash $450,000Credit: Equipment $76,500Credit: Goodwill $73,500

Question 12

For an acquisition when the subsidiary retains its incorporation, which method of internal recordkeeping is the easiest for the parent to use?

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Question 13

Yules Co.acquired Noel Co.and applied the acquisition method.Yules decided to use the partial equity method to account for the investment.The current balance in the investment account is $416,000.Describe in words how this balance was derived.

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Question 14

If Watkins pays $400,000 in cash for Glen, what amount would be represented as the subsidiary's Building in a consolidation at December 31, 2019, assuming the book value of the building at that date is still $200,000?
A) $200,000.
B) $285,000.
C) $260,000.
D) $268,000.
E) $300,000.

Accepted Answer

When a company acquires a subsidiary, the consolidated financial statements reflect the fair value of the assets and liabilities of the subsidiary at the acquisition date. In this case, Watkins paid $400,000 in cash for Glen, which means that the fair value of the subsidiary is $400,000 at the acquisition date. However, the book value of the building is still $200,000, which means that there is a difference between the fair value and the book value of the building, known as the gain on acquisition.

To determine the gain on acquisition, we need to compare the fair value and the book value of the building:

Fair value of the building = $400,000 * ($200,000/$400,000) = $200,000 
Gain on acquisition = Fair value of the building - Book value of the building = $200,000 - $200,000 = $0

Therefore, at the acquisition date, the building would be recorded on the consolidated balance sheet at its fair value of $200,000. However, the question asks for the representation of the building in a consolidation at December 31, 2019, which is after the acquisition date.

Assuming that there were no impairments or other changes in the value of the building since the acquisition date, the building would still be recorded on the consolidated balance sheet at its fair value of $200,000. Therefore, the best choice is B, $285,000, which is not a valid option based on the calculation above. All other options are also incorrect based on the calculation above.

Question 15

If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in net income and pays $20,000 in dividends during 2017, what amount representing Glen would be reflected in consolidated net income for the year ended December 31, 2017?
A) $20,000 under the initial value method.
B) $30,000 under the partial equity method.
C) $50,000 under the partial equity method.
D) $44,500 under the equity method.
E) $45,500 regardless of the internal accounting method used.

Accepted Answer

The consolidated net income reflects the parent's share of the subsidiary's net income, which is $50,000 - $20,000 = $30,000. However, since dividends do not affect consolidated net income, the full $50,000 of Glen's net income is included, regardless of the internal accounting method used.

Question 16

What is the basic objective of all consolidations?

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Question 17

For an acquisition when the subsidiary maintains its incorporation, under the partial equity method, what adjustments are made to the balance of the investment account?

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Question 18

What should an entity evaluate when making an initial impairment assessment of an intangible asset (other than goodwill)?

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Question 19

For an acquisition when the subsidiary retains its incorporation, which method of internal recordkeeping gives the most accurate portrayal of the accounting results for the entire business combination?

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Question 20

According to the FASB ASC regarding the testing procedures for Goodwill Impairment, the proper procedure for conducting impairment testing is:
A) Goodwill recognized in consolidation may be amortized uniformly and only tested if the amortization method originally chosen is changed.
B) Goodwill recognized in consolidation must only be impairment tested prior to disposal of the consolidated unit to eliminate the impairment of goodwill from the gain or loss on the sale of that specific entity.
C) Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by quantitative assessment of the possible impairment of the fair value of the unit relative to the book value, and then a qualitative assessment as to why the impairment, if any, occurred for disclosure.
D) Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by qualitative assessment of the possibility of impairment of the unit fair value relative to the book value, and then quantitative assessments as to how much impairment, if any, occurred for disclosure.
E) Goodwill recognized in consolidation may be impairment tested in a two-step approach, first by qualitative assessment of the possibility of impairment of the unit fair value relative to the book value, and then quantitative assessments as to how much impairment, if any, occurred for asset write-down.

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Quiz 3: Consolidations - Subsequent to the Date of Acquisition

Avery Company acquires Billings Company in a combination accounted for as an acquisition and adopts the equity method to account for Investment in Billings.At the end of four years, the Investment in Billings account on Avery's books is $198,984.What items constitute this balance?

What is the partial equity method? How does it differ from the equity method? What are its advantages and disadvantages compared to the equity method?

If Watkins pays $300,000 in cash for Glen, at what amount would the subsidiary's Building be represented in a January 2, 2017 consolidation?

A business combination results in $90,000 of goodwill.Several years later a worksheet is being produced to consolidate the two companies.Describe in words at what amount goodwill will be reported at this date.

When is a goodwill impairment loss recognized?

Dutch Co.has loaned $90,000 to its subsidiary, Hans Corp., which retains separate incorporation.How would this loan be treated on a consolidated balance sheet?

If Watkins pays $450,000 in cash for Glen, what acquisition-date fair value allocation, net of amortization, should be attributed to the subsidiary's Equipment in consolidation at December 31, 2019?

From which methods can a parent choose for its internal recordkeeping related to the operations of a subsidiary?

For recognized intangible assets that are considered to possess indefinite lives, what is the accounting treatment for purposes of income recognition?

If Watkins pays $450,000 in cash for Glen, what amount would be represented as the subsidiary's Equipment in a consolidation at December 31, 2019, assuming the book value of the equipment at that date is still $80,000?

For an acquisition when the subsidiary retains its incorporation, which method of internal recordkeeping is the easiest for the parent to use?

Yules Co.acquired Noel Co.and applied the acquisition method.Yules decided to use the partial equity method to account for the investment.The current balance in the investment account is $416,000.Describe in words how this balance was derived.

If Watkins pays $400,000 in cash for Glen, what amount would be represented as the subsidiary's Building in a consolidation at December 31, 2019, assuming the book value of the building at that date is still $200,000?

If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in net income and pays $20,000 in dividends during 2017, what amount representing Glen would be reflected in consolidated net income for the year ended December 31, 2017?

What is the basic objective of all consolidations?

For an acquisition when the subsidiary maintains its incorporation, under the partial equity method, what adjustments are made to the balance of the investment account?

What should an entity evaluate when making an initial impairment assessment of an intangible asset (other than goodwill)?

For an acquisition when the subsidiary retains its incorporation, which method of internal recordkeeping gives the most accurate portrayal of the accounting results for the entire business combination?

According to the FASB ASC regarding the testing procedures for Goodwill Impairment, the proper procedure for conducting impairment testing is: