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Exam 4: Consolidated Financial Statements and Outside Ownership

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Question 21

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Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.Demers earns income and pays dividends as follows: Assume the partial equity method is applied.What is the consolidated balance of the Investment in Demers account at December 31, 2021.

A) $780,000.
B) $660,000.
C) $785,000.
D) $676,000.
E) $0.

F) C) and D)
G) A) and C)

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Question 22

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On January 1, 2020, Elva Corp. paid $750,000 for 80% of Fenton Co. when the book value of Fenton's net assets was $800,000. Fenton owned a building with a fair value of $150,000 and a book value of $120,000.Required: At what amount would the building appear on a consolidated balance sheet prepared immediately after the combination, under the acquisition method of accounting for business combinations?

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Question 23

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On January 1, 2019, Jannison Inc. acquired 90% of Techron Co. by paying $477,000 cash. There is no active trading market for Techron stock. Techron Co. reported a Common Stock account balance of $140,000 and Retained Earnings of $280,000 at that date. The fair value of Techron Co. was appraised at $530,000. The total annual amortization was $11,000 as a result of this transaction. The subsidiary earned $98,000 in 2019 and $126,000 in 2020 with dividend payments of $42,000 each year. Without regard for this investment, Jannison had income of $308,000 in 2019 and $364,000 in 2020.Prepare a proper presentation of consolidated net income and its allocation for 2020.

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.Demers earns income and pays dividends as follows: Assume the partial equity method is applied.Compute the noncontrolling interest in Demers at December 31, 2020.

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.Demers earns income and pays dividends as follows: Assume the partial equity method is applied.What is the consolidated balance of the Equity in Demers Earnings account at December 31, 2021.

Scott Co. acquired 70% of Gregg Co. for $525,000 on December 31, 2019 when Gregg's book value was $580,000. The Gregg stock was not actively traded. On the date of acquisition, Gregg had equipment (with a ten-year life) that was undervalued in the financial records by $170,000. One year later, the two companies provided the selected amounts shown below. Additionally, no dividends have been paid. 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?

Select True (T)or False (F)for each of the following statements:_____1. A parent will recognize a gain or loss if it sells a portion of its investment in a subsidiary and maintains control after the sale._____2. A parent sells a portion of its investment in a subsidiary and no longer maintains control. This sale of shares represents a remeasurement event for the investee._____3. International financial reporting standards (IFRS)allow an option to value the noncontrolling interest with goodwill or to value the noncontrolling interest without goodwill._____4. Consolidated net income represents the combined net income of the parent and subsidiary after subtracting the noncontrolling interest in the net income of the subsidiary._____5. The total acquisition-date fair value of an acquired firm is the sum of the fair value of the controlling interest and the fair value of the noncontrolling interest._____6. When control of a subsidiary is acquired on a date other than the first day of a fiscal year, excess amortization expenses are pro-rated to include only the post-acquisition period._____7. For a mid-year acquisition following an equity method investment of the same company, the consolidated income statement will report consolidated revenues and expenses for the entire year._____8. In a step acquisition where the parent previously held a noncontrolling interest in the acquired firm, the parent remeasures the prior interest to fair value._____9. When a parent has control over a subsidiary with less than 100 percent ownership, and thereafter increases its ownership, the parent remeasures the prior interest to fair value.

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000.What is the amount of excess land allocation attributed to the controlling interest at the acquisition date?

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000.What is the amount of excess land allocation attributed to the noncontrolling interest at the acquisition date?

When Valley Co. acquired 80% of the common stock of Coleman Corp., Coleman owned land with a book value of $75,000 and a fair value of $125,000.What amount should have been reported for the land in a consolidated balance sheet at the acquisition date?

When a parent company acquires a less-than-100 percent controlling interest in a subsidiary, what portion of that subsidiary's financial data does the parent consolidate?

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?

On January 1, 2019, Glenville Co. acquired an 80% interest in Acron Corp. for $500,000. There is no active trading market for Acron's stock. The fair value of Acron's net assets was $600,000 and Glenville accounts for its interest using the acquisition method.Determine the amount of goodwill to be recognized in this acquisition.

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?

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

Scott Co. acquired 70% of Gregg Co. for $525,000 on December 31, 2019 when Gregg's book value was $580,000. The Gregg stock was not actively traded. On the date of acquisition, Gregg had equipment (with a ten-year life) that was undervalued in the financial records by $170,000. One year later, the two companies provided the selected amounts shown below. Additionally, no dividends have been paid. What is the consolidated balance of the Equipment account at December 31, 2020?

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.Demers earns income and pays dividends as follows: Assume the partial equity method is applied.Compute Pell's Investment in Demers at December 31, 2021.

Renz Co. acquired 80% of the voting common stock of Sogers Corp. on January 1, 2022. During 2022, Sogers had revenues of $2,700,000 and expenses of $2,100,000. The amortization of fair value allocations totaled $65,000 in 2022. Not including its investment in Sogers, Renz Co. had its own revenues of $4,800,000 and expenses of $3,600,000 for the year 2022.What amount would Renz Co. report as consolidated net income for 2022?

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.Demers earns income and pays dividends as follows: Assume the initial value method is applied.Compute the noncontrolling interest in Demers at December 31, 2021.

Caldwell Inc. acquired 65% of Club Corp. for $2,600,000. There was no active market for the shares of Club Corp. Club owned a building and equipment with ten-year useful lives. The combined book value of these assets was $830,000, and the fair value was $950,000. For Club's other assets and liabilities, book value was equal to fair value. The total acquisition-date fair value of Club's net assets was $3,500,000.Using the acquisition method, determine the amount of goodwill associated with Caldwell's purchase of Club.