Question 1

Company P acquires 100 percent of the voting shares of Company S for $275,000 on December 31,20X8.The fair value of the net assets of Company P at the date of acquisition was $300,000.This is an example of a(n):

Accepted Answer

A bargain purchase occurs when the fair value of the net assets acquired exceeds the consideration transferred. In this case, Company P paid $275,000 for Company S, but the fair value of Company S's net assets was $300,000, indicating a bargain purchase.

Question 2

Which of the following observations is NOT consistent with the use of push-down accounting?

Accepted Answer

Push-down accounting eliminates the need for differential-related consolidating entries because the subsidiary's assets and liabilities are already adjusted to fair value.

Question 3

Pizza Corporation acquired 100 percent of Slice Company on January 1,20X5,for $350,000.Following are selected account balances from Pizza and Slice Corporation as of December 31,20X5:
  
Additional Information:
On January 1,20X5 the fair market value of Slice's assets equaled their book value with the exception of Plant Assets (with an estimated economic life of 6 years)which had a fair market value in excess in Slice's depreciable assets of $33,000.
Pizza used the equity method in accounting for its investment in Slice.
Detailed analysis of receivables and payables showed that Slice owed Pizza $10,000 on December 31,20X5.
Required:
a.Give all journal entries recorded by Pizza with regard to its investment in Slice during 20X5.
b.Give all consolidating entries needed to prepare a full set of consolidated financial statements for 20X5.
c.Prepare a three-part consolidation worksheet as of December 31,20X5.

Accepted Answer

The answer of Pizza Corporation acquired 100 percent of Slice...

Question 4

On December 31,20X1,Pine Corporation acquired 100 percent ownership of Sap Corporation.On that date,Sap reported assets and liabilities with books values of $450,000 and $200,000,respectively,common stock outstanding of $150,000,and retained earnings of $100,000.The book values and fair values of Sap's assets and liabilities were identical except for land which had increased in value by $15,000 and inventories which had decreased by $5,000.
-Based on the preceding information,what amount of goodwill will be reported in the consolidated balance sheet on the acquisition date if the acquisition price was $240,000?

Accepted Answer

The answer of On December 31,20X1,Pine Corporation acquired 100 percent...

Question 5

Puzzle Corporation acquired 100 percent of the common stock of Solver Company by issuing 10,000 shares of $10 par common stock with a market value of $60 per share.Summarized balance sheet data for the two companies immediately preceding the acquisition are as follows:
  
Required:
Determine the dollar amounts to be presented in the consolidated balance sheet for (1)total assets, (2)total liabilities,and (3)total stockholders' equity.

Accepted Answer

The answer of Puzzle Corporation acquired 100 percent of the...

Question 6

Plant Company acquired all of Sprout Corporation's stock on January 1,20X6 for $150,000 cash.On December 31,20X8,the trial balances of the two companies were as follows:
  Sprout Corporation reported retained earnings of $75,000 at the date of acquisition.The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of five years from the date of acquisition.At December 31,20X8,Sprout owed Plant $4,000 for services provided.
-Based on the preceding information,what amount will be reported for total accounts payable in the consolidated balance sheet for the year 20X8?

Accepted Answer

The consolidated accounts payable balance is $56,000, which is the sum of the individual accounts payable balances of the parent company ($40,000) and the subsidiary company ($16,000).

Question 7

Pop Company obtained 100 percent of Snap Company's common stock on January 1,20X6 by issuing 12,500 shares of its own common stock,which had a $5 par value and a $15 fair value on that date.Snap reported a net book value of $150,000 and its shares had a $20 per share fair value on that date.However,some of its plant assets (with a 5-year remaining life)were undervalued by $20,000 in the company's accounting records.Snap had also developed a customer list with an estimated fair value of $10,000 and a remaining life of 10 years.Pop Company uses the equity-method to account for its investment in Snap.During 20X6 Pop and Snap reported the following:
  
Required:
Prepare each of the journal entries listed below related to Pop's investment in Snap.
1.Pop's acquisition of Snap.
2.Pop's share of Snap's 20X6 income.
3.Pop's share of Snap's 20X6 dividend income.
4.Pop's amortization of excess acquisition price.

Accepted Answer

The answer of Pop Company obtained 100 percent of Snap...

Question 8

Plant Company acquired all of Sprout Corporation's stock on January 1,20X6 for $150,000 cash.On December 31,20X8,the trial balances of the two companies were as follows:
  Sprout Corporation reported retained earnings of $75,000 at the date of acquisition.The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of five years from the date of acquisition.At December 31,20X8,Sprout owed Plant $4,000 for services provided.
-Based on the preceding information,what amount of total liabilities will be reported in the consolidated balance sheet for 20X8?

Accepted Answer

To calculate the total liabilities in the consolidated balance sheet, we need to combine the liabilities of both companies.

From the trial balances, we can see that Sprout Corporation has total liabilities of $24,000 ($6,000 + $18,000) and Plant Company has total liabilities of $197,000 ($170,000 + $27,000).

We also know that Sprout owes Plant $4,000 for services provided.

Therefore, the total liabilities in the consolidated balance sheet would be:

$24,000 (Sprout's liabilities) + $197,000 (Plant's liabilities) + $4,000 (amount owed by Sprout to Plant) = $225,000

So the correct answer is B) $221,000.

Question 9

Which term refers to the practice of revaluing an acquired subsidiary's assets and liabilities to their fair values directly on that subsidiary's books at the date of acquisition?

Accepted Answer

Push-down accounting refers to the practice of revaluing an acquired subsidiary's assets and liabilities to their fair values directly on that subsidiary's books at the date of acquisition. This is in contrast to fair value accounting, which involves recognizing changes in fair value in the parent company's financial statements, and fully adjusted method, which involves adjusting both the parent company's and subsidiary's financial statements to reflect the acquisition. Reciprocal ownership refers to a situation in which two companies own each other's stock.

Question 10

Consolidated financial statements are being prepared for Behemoth Corporation and its two wholly-owned subsidiaries that have intercompany loans of $50,000 and intercompany profits of $100,000.How much of these intercompany loans and profits should be eliminated?

Accepted Answer

In consolidated financial statements, all intercompany transactions, including loans and profits, must be eliminated to avoid double counting and present a true picture of the financial status of the entire corporate entity.

Question 11

Plant Company acquired all of Sprout Corporation's stock on January 1,20X6 for $150,000 cash.On December 31,20X8,the trial balances of the two companies were as follows:
  Sprout Corporation reported retained earnings of $75,000 at the date of acquisition.The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of five years from the date of acquisition.At December 31,20X8,Sprout owed Plant $4,000 for services provided.
-Based on the preceding information,what amount will be reported as total assets in the consolidated balance sheet for 20X8?

Accepted Answer

The answer of Plant Company acquired all of Sprout Corporation's...

Question 12

Which of the following is true? When companies employ push-down accounting:

Accepted Answer

When companies employ push-down accounting, the subsidiary revalues assets and liabilities to their fair values as of the acquisition date. This means that the subsidiary will record the assets and liabilities at their fair values or market values at the date of acquisition, instead of their historical costs or book values. This will result in a step-up or step-down in the value of the assets and liabilities, and will affect the subsidiary's equity. This equity difference is reflected in the consolidated financial statements. The other options are not true for push-down accounting.

Question 13

Plant Company acquired all of Sprout Corporation's stock on January 1,20X6 for $150,000 cash.On December 31,20X8,the trial balances of the two companies were as follows:
  Sprout Corporation reported retained earnings of $75,000 at the date of acquisition.The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of five years from the date of acquisition.At December 31,20X8,Sprout owed Plant $4,000 for services provided.
-Based on the preceding information,all of the following are consolidating entries required on December 31,20X8,to prepare consolidated financial statements,except:

Accepted Answer

Option D is incorrect because it is not a required consolidating entry. 
Option A: This entry is necessary to eliminate the intercompany balance between Plant and Sprout. 
Option B: This entry is necessary to eliminate the amortization of the excess price allocated to the buildings and equipment of Sprout. 
Option C: This entry is necessary to adjust the beginning balance of retained earnings of Sprout to account for the acquisition.

Question 14

On January 1,20X8,Piano Company acquired all of Song Corporation's voting shares for $280,000 cash.On December 31,20X9,Song owed Piano $5,000 for services provided during the year.When consolidated financial statements are prepared for 20X9,which entry is needed to eliminate intercompany receivables and payables in the consolidation worksheet?

Accepted Answer

The answer of On January 1,20X8,Piano Company acquired all of...

Question 15

On December 31,20X1,Pine Corporation acquired 100 percent ownership of Sap Corporation.On that date,Sap reported assets and liabilities with books values of $450,000 and $200,000,respectively,common stock outstanding of $150,000,and retained earnings of $100,000.The book values and fair values of Sap's assets and liabilities were identical except for land which had increased in value by $15,000 and inventories which had decreased by $5,000.
-Based on the preceding information,what amount of goodwill will be reported in the consolidated balance sheet on the acquisition date if the acquisition price was $280,000?

Accepted Answer

The fair value of Sap's net assets is $260,000 ($450,000 assets - $200,000 liabilities + $15,000 land increase - $5,000 inventory decrease). The acquisition price is $280,000, so goodwill is $280,000 - $260,000 = $20,000.

Question 16

Plant Company acquired all of Sprout Corporation's stock on January 1,20X6 for $150,000 cash.On December 31,20X8,the trial balances of the two companies were as follows:
  Sprout Corporation reported retained earnings of $75,000 at the date of acquisition.The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of five years from the date of acquisition.At December 31,20X8,Sprout owed Plant $4,000 for services provided.
-Based on the preceding information,what amount of total retained earnings will be reported in the consolidated balance sheet for the year 20X8?

Accepted Answer

The consolidated retained earnings will be $330,000, which is the sum of the individual retained earnings of the two companies.

Question 17

On January 1,20X9,Paradox Company acquired all of Sirius Company's common shares,for $365,000 cash.On that date,Sirius's balance sheet appeared as follows:
  The fair values of all of Sirius's assets and liabilities were equal to their book values except for inventory that had a fair value of $85,000,land that had a fair value of $60,000,and buildings and equipment that had a fair value of $250,000.Buildings and equipment have a remaining useful life of 10 years with zero salvage value.Paradox Company decided to employ push-down accounting for the acquisition.Subsequent to the combination,Sirius continued to operate as a separate company.
-Based on the preceding information,what amount will be present in the revaluation capital account,when consolidating entries are prepared?

Accepted Answer

The answer of On January 1,20X9,Paradox Company acquired all of...

Question 18

On January 1,20X9,Paradox Company acquired all of Sirius Company's common shares,for $365,000 cash.On that date,Sirius's balance sheet appeared as follows:
  The fair values of all of Sirius's assets and liabilities were equal to their book values except for inventory that had a fair value of $85,000,land that had a fair value of $60,000,and buildings and equipment that had a fair value of $250,000.Buildings and equipment have a remaining useful life of 10 years with zero salvage value.Paradox Company decided to employ push-down accounting for the acquisition.Subsequent to the combination,Sirius continued to operate as a separate company.
-Based on the preceding information,what amount of differential will arise in the consolidation process?

Accepted Answer

Without specific details about the consolidation process or the financial figures involved, the default assumption is that no differential arises, hence $0.

Quiz 4: Consolidation of Wholly Owned Subsidiaries Acquired at More Than Book Value

Company P acquires 100 percent of the voting shares of Company S for $275,000 on December 31,20X8.The fair value of the net assets of Company P at the date of acquisition was $300,000.This is an example of a(n) :

Which of the following observations is NOT consistent with the use of push-down accounting?

Which term refers to the practice of revaluing an acquired subsidiary's assets and liabilities to their fair values directly on that subsidiary's books at the date of acquisition?

Consolidated financial statements are being prepared for Behemoth Corporation and its two wholly-owned subsidiaries that have intercompany loans of $50,000 and intercompany profits of $100,000.How much of these intercompany loans and profits should be eliminated?

Which of the following is true? When companies employ push-down accounting: