REFERENCE: 03-06
Kaye Company acquired 100% of Fiore Company on January 1,2018.Kaye paid $1,000 excess consideration over book value,which is being amortized at $20 per year.There was no goodwill in the combination.Fiore reported net income of $400 in 2018 and paid dividends of $100.
-Assume the initial value method is used.In the year subsequent to acquisition,what additional worksheet entry must be made for consolidation purposes that is not required for the equity method?
A.
$\begin{array}{ll}
\text { Investment in Fiore } & 380 \
\quad \text { Retained earnings } &&380 \\end{array}$

B.
$\begin{array}{ll}\text { Retained earnings } & 380 \
\quad \text { Investment in Fiore } & &380\\end{array}$

C.
$\begin{array}{ll}\text { Investment in Fiore } &280 \
\quad \text { Retained earnings } &&280\\end{array}$

D.
$\begin{array}{ll}\text { Retained earnings } &280 \
\quad \text { Investment in Fiore } && 280 \\end{array}$

E.
$\begin{array}{ll}\text { Additional paid-in capital } &280 \
\quad \text { Retained earnings }&&280
\end{array}$
A)Entry A.
B)Entry B.
C)Entry C.
D)Entry D.
E)Entry E.

Question

REFERENCE: 03-06
Kaye Company acquired 100% of Fiore Company on January 1,2018.Kaye paid $1,000 excess consideration over book value,which is being amortized at $20 per year.There was no goodwill in the combination.Fiore reported net income of $400 in 2018 and paid dividends of $100.
-Assume the initial value method is used.In the year subsequent to acquisition,what additional worksheet entry must be made for consolidation purposes that is not required for the equity method?
A.
$\begin{array}{ll}
\text { Investment in Fiore } & 380 \
\quad \text { Retained earnings } &&380 \\end{array}$

B.
$\begin{array}{ll}\text { Retained earnings } & 380 \
\quad \text { Investment in Fiore } & &380\\end{array}$

C.
$\begin{array}{ll}\text { Investment in Fiore } &280 \
\quad \text { Retained earnings } &&280\\end{array}$

D.
$\begin{array}{ll}\text { Retained earnings } &280 \
\quad \text { Investment in Fiore } && 280 \\end{array}$

E.
$\begin{array}{ll}\text { Additional paid-in capital } &280 \
\quad \text { Retained earnings }&&280
\end{array}$ 
A)Entry A.
B)Entry B.
C)Entry C.
D)Entry D.
E)Entry E.

Quizplus · Accepted Answer

The initial value method involves creating a worksheet entry to record the difference between the fair value of the assets acquired and the consideration paid. In this case, the excess consideration paid by Kaye Company over the book value of Fiore Company is being amortized over the useful life of the assets acquired. However, for consolidation purposes in the subsequent year, an additional worksheet entry must be made to eliminate the intercompany transactions between Kaye and Fiore, including any dividends paid by Fiore to Kaye. This additional entry is not required for the equity method because under this method intercompany transactions are eliminated on an ongoing basis as they occur. The specific entry required for consolidation purposes in the subsequent year is Entry C, which eliminates the dividend payment made by Fiore to Kaye.

REFERENCE: 03-06 Kaye Company Acquired 100% of Fiore Company on January

REFERENCE: 03-06
Kaye Company Acquired 100% of Fiore Company on January