Question 1

Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common stock?
A) The parent recognizes a larger percent of subsidiary income.
B) A step acquisition resulting in control may result in a parent recognizing a gain on revaluation.
C) The book value of the subsidiary will increase.
D) The parent's percent ownership in subsidiary will increase.
E) Noncontrolling interest in subsidiary's net income will decrease.

Accepted Answer

The book value of the subsidiary will not increase with multiple acquisitions of its existing common stock. The book value of the subsidiary is determined at the time of the initial acquisition and is not affected by subsequent purchases of its common stock.

Question 2

When a parent uses the initial value method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?
A) Parent company net income equals consolidated net income.
B) Parent company retained earnings equals consolidated retained earnings.
C) Parent company total assets equals consolidated total assets.
D) Parent company dividends equal consolidated dividends.
E) Goodwill is recorded on the parent's books.

Accepted Answer

The answer of When a parent uses the initial value...

Question 3

What is the consolidated balance of the Equipment account at December 31, 2020?
A) $644,400.
B) $784,000.
C) $719,600.
D) $770,000.
E) $775,600.

Accepted Answer

The answer of What is the consolidated balance of the...

Question 4

Kordel Inc.acquired 75% of the outstanding common stock of Raxston Corp.Raxston currently owes Kordel $500,000 for inventory acquired over the past few months.In preparing consolidated financial statements, what amount of Raxston's liability should be eliminated?
A) $375,000
B) $125,000
C) $300,000
D) $500,000
E) $0.

Accepted Answer

The answer of Kordel Inc.acquired 75% of the outstanding common...

Question 5

What is the amount attributable to consolidated noncurrent assets at January 2, 2019?
A) $195,000.
B) $192,200.
C) $186,600.
D) $181,000.
E) $169,800.

Accepted Answer

The answer of What is the amount attributable to consolidated...

Question 6

In a step acquisition, which of the following statements is false?
A) The acquisition method views a step acquisition essentially the same as a single step acquisition.
B) Income from subsidiary is computed by applying a partial year for a new purchase acquired during the year.
C) Income from subsidiary is computed for the entire year for a new purchase acquired during the year.
D) Obtaining control through a step acquisition is a significant measurement event.
E) Pre-acquisition earnings are not included in the consolidated income statement.

Accepted Answer

Income from subsidiary is computed for the entire year for a new purchase acquired during the year in a step acquisition. This is the main difference between a step acquisition and a single step acquisition, where income is only calculated from the date of acquisition. Therefore, statement C is true, but statement B is false.

Question 7

What is the noncontrolling interest's share of the subsidiary's net income for the year ended December 31, 2020 and what is the ending balance of the noncontrolling interest in the subsidiary at December 31, 2020?
A) $56,000 and $280,000.
B) $50,400 and $218,400.
C) $56,000 and $224,000.
D) $56,000 and $336,000.
E) $50,400 and $330,400.

Accepted Answer

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Question 8

When a parent uses the partial equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?
A) Parent company net income equals consolidated net income.
B) Parent company retained earnings equals consolidated retained earnings.
C) Parent company total assets equals consolidated total assets.
D) Parent company dividends equal consolidated dividends.
E) Goodwill is recorded on the parent's books.

Accepted Answer

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Question 9

When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true?
A) Income from subsidiary is not recognized until there is an entire year of consolidated operations.
B) Income from subsidiary is recognized from date of acquisition to year-end.
C) Excess cost over acquisition value is recognized at the beginning of the fiscal year.
D) No goodwill can be recognized.
E) Income from subsidiary is recognized for the entire year.

Accepted Answer

When a subsidiary is acquired sometime after the first day of the fiscal year, income from the subsidiary is recognized from the date of acquisition to year-end. This is in accordance with the acquisition method of accounting, which requires the recognition of the assets acquired, liabilities assumed, and any goodwill or excess cost over the acquisition value at the date of acquisition. The income from the subsidiary is then consolidated with the parent's income for the remainder of the fiscal year. Choice A, C, D, and E are not correct because they do not align with the acquisition method of accounting.

Question 10

What are the total consolidated current liabilities at January 2, 2019?
A) $53,200.
B) $56,000.
C) $64,400.
D) $42,000.
E) $70,000.

Accepted Answer

To find the total consolidated current liabilities at January 2, 2019, we need to add up the current liabilities of all the subsidiaries listed in the table. Adding up the values in the "Current Liabilities" column, we get:

$20,000 + $9,600 + $14,800 + $11,000 + $9,000 = $64,400.

Therefore, the correct answer is choice C) $64,400.

Question 11

When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false?
A) If majority control is still maintained, consolidated financial statements are still required.
B) If majority control is not maintained but significant influence exists, the equity method to account for the investment is still used but consolidated financial statements are not required.
C) If majority control is not maintained but significant influence exists, the equity method is still used to account for the investment and consolidated financial statements are still required.
D) If majority control is not maintained and significant influence no longer exists, a prospective change in accounting principle to the fair value method is required.
E) A gain or loss calculation must be prepared if control is lost.

Accepted Answer

The answer of When a parent uses the acquisition method...

Question 12

When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, which of the following statements is true of the subsidiary with respect to the presentation of consolidated financial statement information?
A) Pre-acquisition earnings are deducted from consolidated revenues and expenses.
B) Pre-acquisition earnings are added to consolidated revenues and expenses.
C) Pre-acquisition earnings are deducted from the beginning consolidated stockholders' equity.
D) Pre-acquisition earnings are added to the beginning consolidated stockholders' equity.
E) Pre-acquisition earnings are ignored in the consolidated income statement.

Accepted Answer

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Question 13

What is consolidated stockholders' equity at January 2, 2019?
A) $112,000.
B) $133,000.
C) $168,000.
D) $182,000.
E) $203,000.

Accepted Answer

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Question 14

Jax Company used the acquisition method when it acquired its investment in Saxton Company.Jax now sells some of its shares of Saxton such that neither control nor significant influence exists.Which of the following statements is true?
A) The difference between selling price and acquisition value is recorded as a realized gain or loss.
B) The difference between selling price and acquisition value is recorded as an unrealized gain or loss.
C) The difference between selling price and carrying value is recorded as a realized gain or loss.
D) The difference between selling price and carrying value is recorded as an unrealized gain or loss.
E) The difference between selling price and carrying value is recorded as an adjustment to retained earnings.

Accepted Answer

The answer of Jax Company used the acquisition method when...

Question 15

All of the following statements regarding the sale of subsidiary shares are true except which of the following?
A) The use of specific identification based on serial number is acceptable.
B) The use of the FIFO assumption is acceptable.
C) The use of the averaging assumption is acceptable.
D) The use of specific LIFO assumption is acceptable.
E) The parent company must determine whether consolidation is still appropriate for the remaining shares owned.

Accepted Answer

The use of specific LIFO assumption is not acceptable for the sale of subsidiary shares. This is because specific LIFO is not commonly used and it is difficult to apply to the sale of shares. The other statements are true and acceptable methods for determining the cost basis of the shares sold. Additionally, the parent company should determine whether consolidation is still appropriate for the remaining shares owned after the sale.

Question 16

In measuring the noncontrolling interest immediately following the date of acquisition, which of the following would not be indicative of the value attributed to the noncontrolling interest?
A) Fair value based on stock trades of the acquired company.
B) Subsidiary cash flows discounted to present value.
C) Book value of subsidiary net assets.
D) Projections of residual income.
E) Consideration transferred by the parent company that implies a total subsidiary value.

Accepted Answer

The book value of subsidiary net assets is typically used to calculate the value of the controlling interest in a subsidiary, not the noncontrolling interest. Options A, B, D, and E are all commonly used methods for determining the fair value of the noncontrolling interest.

Question 17

What amount represents consolidated current assets at January 2, 2019?
A) $127,000.
B) $129,800.
C) $143,800.
D) $148,000.
E) $135,400.

Accepted Answer

The answer of What amount represents consolidated current assets at...

Question 18

When a parent uses the equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is false at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?
A) Parent company net income equals controlling interest in consolidated net income.
B) Parent company retained earnings equals consolidated retained earnings.
C) Parent company total assets equals consolidated total assets.
D) Parent company dividends equals consolidated dividends.
E) Goodwill is not recorded on the parent's books.

Accepted Answer

The answer of When a parent uses the equity method...

Question 19

What amount of consolidated net income for 2020 is attributable to Royce's controlling interest?
A) $686,000.
B) $560,000.
C) $644,000.
D) $635,600.
E) $691,600.

Accepted Answer

To calculate the amount of consolidated net income attributable to Royce's controlling interest, we need to first find the net income attributable to the non-controlling interest.

Net income of subsidiary = $840,000 - $92,000 - $14,000 = $734,000
Net income attributable to non-controlling interest = $734,000 x 20% = $146,800

Consolidated net income attributable to controlling interest = Consolidated net income - Net income attributable to non-controlling interest
= $840,000 - $146,800 = $693,200

However, we also need to subtract the portion of consolidated net income attributable to the preferred stockholders, which is $57,600.

Therefore, the consolidated net income attributable to Royce's controlling interest is $693,200 - $57,600 = $635,600, which is option D.

Question 20

Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition method for accounting for business combinations?
A) If control continues, the difference between selling price and acquisition value is recorded as a realized gain or loss.
B) If control continues, the difference between selling price and acquisition value is an unrealized gain or loss.
C) If control continues, the difference between selling price and carrying value is recorded as an adjustment to additional paid-in capital.
D) If control continues, the difference between selling price and carrying value is recorded as a realized gain or loss.
E) If control continues, the difference between selling price and carrying value is recorded as an adjustment to retained earnings.

Accepted Answer

The answer of Which of the following statements is true...

Quiz 4: A: Consolidated Financial Statements and Outside Ownership

Which of the following statements is false regarding multiple acquisitions of a subsidiary's existing common stock?

When a parent uses the initial value method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?

What is the consolidated balance of the Equipment account at December 31, 2020?

Kordel Inc.acquired 75% of the outstanding common stock of Raxston Corp.Raxston currently owes Kordel $500,000 for inventory acquired over the past few months.In preparing consolidated financial statements, what amount of Raxston's liability should be eliminated?

What is the amount attributable to consolidated noncurrent assets at January 2, 2019?

In a step acquisition, which of the following statements is false?

What is the noncontrolling interest's share of the subsidiary's net income for the year ended December 31, 2020 and what is the ending balance of the noncontrolling interest in the subsidiary at December 31, 2020?

When a parent uses the partial equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is true at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?

When a subsidiary is acquired sometime after the first day of the fiscal year, which of the following statements is true?

What are the total consolidated current liabilities at January 2, 2019?

When a parent uses the acquisition method for business combinations and sells shares of its subsidiary, which of the following statements is false?

When consolidating a subsidiary that was acquired on a date other than the first day of the fiscal year, which of the following statements is true of the subsidiary with respect to the presentation of consolidated financial statement information?

What is consolidated stockholders' equity at January 2, 2019?

Jax Company used the acquisition method when it acquired its investment in Saxton Company.Jax now sells some of its shares of Saxton such that neither control nor significant influence exists.Which of the following statements is true?

All of the following statements regarding the sale of subsidiary shares are true except which of the following?

In measuring the noncontrolling interest immediately following the date of acquisition, which of the following would not be indicative of the value attributed to the noncontrolling interest?

What amount represents consolidated current assets at January 2, 2019?

When a parent uses the equity method throughout the year to account for its 80% investment in an acquired subsidiary, which of the following statements is false at the date immediately preceding the date on which adjustments are made on the consolidated worksheet?

What amount of consolidated net income for 2020 is attributable to Royce's controlling interest?

Which of the following statements is true regarding the sale of subsidiary shares when using the acquisition method for accounting for business combinations?