Chapter 03

Consolidations - Subsequent to the Date of Acquisition

Multiple Choice Questions

1. Which one of the following accounts would not appear in the

consolidated financial statements at the end of the first fiscal period of
the combination?

A. Goodwil
l.
B. Equipmen
t.
C. Investment in
Subsidiary.
D. Common
Stock.
E. Additional Paid-In
Capital.

2. Which of the following internal record-keeping methods can a parent

choose to account for a subsidiary acquired in a business combination?

A. initial value or book

value.
B. initial value, lower-of-cost-or-market-value, or
equity.
C. initial value, equity, or partial
equity.
D. initial value, equity, or book
value.
E. initial value, lower-of-cost-or-market-value, or
partial equity.
3. Which one of the following varies between the equity, initial value, and
partial equity methods of accounting for an investment?

A. the amount of consolidated net

income.
B. total assets on the consolidated balance
sheet.
C. total liabilities on the consolidated balance
sheet.
D. the balance in the investment account on the
parent's books.
E. the amount of consolidated cost of
goods sold.

4. Under the partial equity method, the parent recognizes income when

A. dividends are received from the

investee.
B. dividends are declared by the
investee.
C. the related expense has been
incurred.
D. the related contract is signed by the
subsidiary.
E. it is earned by the
subsidiary.
5. Push-down accounting is concerned with the

A. impact of the purchase on the subsidiary's financial

statements.
B. recognition of goodwill by the
parent.
C. correct consolidation of the financial
statements.
D. impact of the purchase on the separate financial statements of
the parent.
E. recognition of dividends received from the
subsidiary.

6. Racer Corp. acquired all of the common stock of Tangiers Co. in 2009.
Tangiers maintained its incorporation. Which of Racer's account
balances would vary between the equity method and the initial value
method?

A. Goodwill, Investment in Tangiers Co., and Retained

Earnings.
B. Expenses, Investment in Tangiers Co., and Equity in Subsidiary
Earnings.
C. Investment in Tangiers Co., Equity in Subsidiary Earnings, and
Retained Earnings.
D. Common Stock, Goodwill, and Investment in
Tangiers Co.
E. Expenses, Goodwill, and Investment in
Tangiers Co.
7. How does the partial equity method differ from the equity method?

A. In the total assets reported on the consolidated

balance sheet.
B. In the treatment of
dividends.
C. In the total liabilities reported on the consolidated
balance sheet.
D. Under the partial equity method, subsidiary income does not
increase the balance in the parent's investment account.
E. Under the partial equity method, the balance in the investment
account is not decreased by amortization on allocations made in the
acquisition of the subsidiary.

8. Jansen Inc. acquired all of the outstanding common stock of Merriam

Co. on January 1, 2010, for $257,000. Annual amortization of $19,000
resulted from this acquisition. Jansen reported net income of $70,000 in
2010 and $50,000 in 2011 and paid $22,000 in dividends each year.
Merriam reported net income of $40,000 in 2010 and $47,000 in 2011
and paid $10,000 in dividends each year. What is the Investment in
Merriam Co. balance on Jansen's books as of December 31, 2011, if the
equity method has been applied?

A. $286,00
0.
B. $295,00
0.
C. $276,00
0.
D. $344,00
0.
E. $324,00
0.
9. Velway Corp. acquired Joker Inc. on January 1, 2010. The parent paid
more than the fair value of the subsidiary's net assets. On that date,
Velway had equipment with a book value of $500,000 and a fair value
of $640,000. Joker had equipment with a book value of $400,000 and a
fair value of $470,000. Joker decided to use push-down accounting.
Immediately after the acquisition, what Equipment amount would
appear on Joker's separate balance sheet and on Velway's consolidated
balance sheet, respectively?

A. $400,000 and
$900,000
B. $400,000 and
$970,000
C. $470,000 and
$900,000
D. $470,000 and
$970,000
E. $470,000 and
$1,040,000
10 Parrett Corp. acquired one hundred percent of Jones Inc. on January 1,
. 2009, at a price in excess of the subsidiary's fair value. On that date,
Parrett's equipment (ten-year life) had a book value of $360,000 but a
fair value of $480,000. Jones had equipment (ten-year life) with a book
value of $240,000 and a fair value of $350,000. Parrett used the partial
equity method to record its investment in Jones. On December 31,
2011, Parrett had equipment with a book value of $250,000 and a fair
value of $400,000. Jones had equipment with a book value of $170,000
and a fair value of $320,000. What is the consolidated balance for the
Equipment account as of December 31, 2011?

A. $387,00
0.
B. $497,00
0.
C. $508.00
0.
D. $537,00
0.
E. $570,00
0.
11 On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co.
. Kaltop maintained separate incorporation. Cale used the equity method
to account for the investment. The following information is available for
Kaltop's assets, liabilities, and stockholders' equity accounts:

Kaltop earned net income for 2010 of $126,000 and paid dividends of
$48,000 during the year.

The 2010 total amortization of allocations is calculated to be

A. $4,00
0.
B. $6,40
0.
C. $(2,400
).
D. $(1,000
).
E. $3,80
0.
12 On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co.
. Kaltop maintained separate incorporation. Cale used the equity method
to account for the investment. The following information is available for
Kaltop's assets, liabilities, and stockholders' equity accounts:

Kaltop earned net income for 2010 of $126,000 and paid dividends of
$48,000 during the year.

In Cale's accounting records, what amount would appear on December

31, 2010 for equity in subsidiary earnings?

A. $77,00
0.
B. $79,00
0.
C. $125,00
0.
D. $127,00
0.
E. $81,80
0.
13 On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co.
. Kaltop maintained separate incorporation. Cale used the equity method
to account for the investment. The following information is available for
Kaltop's assets, liabilities, and stockholders' equity accounts:

Kaltop earned net income for 2010 of $126,000 and paid dividends of
$48,000 during the year.

What is the balance in Cale's investment in subsidiary account at the

end of 2010?

A. $1,099,00
0.
B. $1,020,00
0.
C. $1,096,20
0.
D. $1,098,00
0.
E. $1,144,40
0.
14 On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co.
. Kaltop maintained separate incorporation. Cale used the equity method
to account for the investment. The following information is available for
Kaltop's assets, liabilities, and stockholders' equity accounts:

Kaltop earned net income for 2010 of $126,000 and paid dividends of
$48,000 during the year.

At the end of 2010, the consolidation entry to eliminate Cale's accrual

of Kaltop's earnings would include a credit to Investment in Kaltop Co.
for

A. $124,40
0.
B. $126,00
0.
C. $127,00
0.
D. $76,40
0.
E. $0
.
15 On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co.
. Kaltop maintained separate incorporation. Cale used the equity method
to account for the investment. The following information is available for
Kaltop's assets, liabilities, and stockholders' equity accounts:

Kaltop earned net income for 2010 of $126,000 and paid dividends of
$48,000 during the year.

If Cale Corp. had net income of $444,000 in 2010, exclusive of the

investment, what is the amount of consolidated net income?

A. $569,00
0.
B. $570,00
0.
C. $571,00
0.
D. $566,40
0.
E. $444,00
0.
16 On January 1, 2010, Franel Co. acquired all of the common stock of
. Hurlem Corp. For 2010, Hurlem earned net income of $360,000 and
paid dividends of $190,000. Amortization of the patent allocation that
was included in the acquisition was $6,000.

How much difference would there have been in Franel's income with
regard to the effect of the investment, between using the equity
method or using the initial value method of internal recordkeeping?

A. $190,00
0.
B. $360,00
0.
C. $164,00
0.
D. $354,00
0.
E. $150,00
0.
17 On January 1, 2010, Franel Co. acquired all of the common stock of
. Hurlem Corp. For 2010, Hurlem earned net income of $360,000 and
paid dividends of $190,000. Amortization of the patent allocation that
was included in the acquisition was $6,000.

How much difference would there have been in Franel's income with
regard to the effect of the investment, between using the equity
method or using the partial equity method of internal recordkeeping?

A. $170,00
0.
B. $354,00
0.
C. $164,00
0.
D. $6,00
0.
E. $174,00
0.
18 Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex
. Corp. on January 1, 2010. Janex's reported earnings for 2010 totaled
$432,000, and it paid $120,000 in dividends during the year. The
amortization of allocations related to the investment was $24,000.
Cashen's net income, not including the investment, was $3,180,000,
and it paid dividends of $900,000.

On the consolidated financial statements for 2010, what amount should

have been shown for Equity in Subsidiary Earnings?

A. $432,00
0.
B. $-
0-
C. $408,00
0.
D. $120,00
0.
E. $288,00
0.
19 Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex
. Corp. on January 1, 2010. Janex's reported earnings for 2010 totaled
$432,000, and it paid $120,000 in dividends during the year. The
amortization of allocations related to the investment was $24,000.
Cashen's net income, not including the investment, was $3,180,000,
and it paid dividends of $900,000.

On the consolidated financial statements for 2010, what amount should

have been shown for consolidated dividends?

A. $900,00
0.
B. $1,020,00
0.
C. $876,00
0.
D. $996,00
0.
E. $948,00
0.
20 Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on
. January 1, 2009, for $372,000. Equipment with a ten-year life was
undervalued on Tysk's financial records by $46,000. Tysk also owned an
unrecorded customer list with an assessed fair value of $67,000 and an
estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2009 and $216,000 in
2010. Dividends of $70,000 were paid in each of these two years.
Selected account balances as of December 31, 2011, for the two
companies follow.

If the partial equity method had been applied, what was 2011
consolidated net income?

A. $840,00
0.
B. $768,40
0.
C. $822,00
0.
D. $240,00
0.
E. $600,00
0.
21 Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on
. January 1, 2009, for $372,000. Equipment with a ten-year life was
undervalued on Tysk's financial records by $46,000. Tysk also owned an
unrecorded customer list with an assessed fair value of $67,000 and an
estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2009 and $216,000 in
2010. Dividends of $70,000 were paid in each of these two years.
Selected account balances as of December 31, 2011, for the two
companies follow.

If the equity method had been applied, what would be the Investment
in Tysk Corp. account balance within the records of Jans at the end of
2011?

A. $612,10
0.
B. $744,00
0.
C. $774,15
0.
D. $372,00
0.
E. $844,15
0.
22 Red Co. acquired 100% of Green, Inc. on January 1, 2010. On that date,
. Green had inventory with a book value of $42,000 and a fair value of
$52,000. This inventory had not yet been sold at December 31, 2010.
Also, on the date of acquisition, Green had a building with a book value
of $200,000 and a fair value of $390,000. Green had equipment with a
book value of $350,000 and a fair value of $280,000. The building had
a 10-year remaining useful life and the equipment had a 5-year
remaining useful life. How much total expense will be in the
consolidated financial statements for the year ended December 31,
2010 related to the acquisition allocations of Green?

A. $43,00
0.
B. $33,00
0.
C. $5,00
0.
D. $15,00
0.
E. 0
.

23 All of the following are acceptable methods to account for a majority-

. owned investment in subsidiary except

A. The equity
method.
B. The initial value
method.
C. The partial equity
method.
D. The fair-value
method.
E. Book value
method.
24 Under the equity method of accounting for an investment,
.

A. The investment account remains at initial

value.
B. Dividends received are recorded as
revenue.
C. Goodwill is amortized over 20
years.
D. Income reported by the subsidiary increases the investment
account.
E. Dividends received increase the investment
account.

25 Under the partial equity method of accounting for an investment,

.

A. The investment account remains at initial

value.
B. Dividends received are recorded as
revenue.
C. The allocations for excess fair value allocations over book value of
net assets at date of acquisition are applied over their useful lives to
reduce the investment account.
D. Amortization of the excess of fair value allocations over book value is
ignored in regard to the investment account.
E. Dividends received increase the investment
account.
26 Under the initial value method, when accounting for an investment in a
. subsidiary,

A. Dividends received by the subsidiary decrease the investment

account.
B. The investment account is adjusted to fair value at
year-end.
C. Income reported by the subsidiary increases the investment
account.
D. The investment account remains at initial
value.
E. Dividends received are
ignored.

27 According to GAAP regarding amortization of goodwill and other

. intangible assets, which of the following statements is true?

A. Goodwill recognized in consolidation must be amortized over

20 years.
B. Goodwill recognized in consolidation must be expensed in the period
of acquisition.
C. Goodwill recognized in consolidation will not be amortized but
subject to an annual test for impairment.
D. Goodwill recognized in consolidation can never be
written off.
E. Goodwill recognized in consolidation must be amortized over
40 years.
28 When a company applies the initial method in accounting for its
. investment in a subsidiary and the subsidiary reports income in excess
of dividends paid, what entry would be made for a consolidation
worksheet?

A. A
above
B. B
above
C. C
above
D. D
above
E. E
above
29 When a company applies the initial value method in accounting for its
. investment in a subsidiary and the subsidiary reports income less than
dividends paid, what entry would be made for a consolidation
worksheet?

A. A
above
B. B
above
C. C
above
D. D
above
E. E
above
30 When a company applies the partial equity method in accounting for its
. investment in a subsidiary and the subsidiary's equipment has a fair
value greater than its book value, what consolidation worksheet entry is
made in a year subsequent to the initial acquisition of the subsidiary?

A. A
above
B. B
above
C. C
above
D. D
above
E. E
above
31 When a company applies the partial equity method in accounting for its
. investment in a subsidiary and initial value, book values, and fair values
of net assets acquired are all equal, what consolidation worksheet entry
would be made?

A. A
above
B. B
above
C. C
above
D. D
above
E. E
above
32 When consolidating a subsidiary under the equity method, which of the
. following statements is true?

A. Goodwill is never
recognized.
B. Goodwill required is amortized over 20
years.
C. Goodwill may be recorded on the parent company's
books.
D. The value of any goodwill should be tested annually for
impairment in value.
E. Goodwill should be expensed in the year of
acquisition.

33 When consolidating a subsidiary under the equity method, which of the

. following statements is true with regard to the subsidiary subsequent to
the year of acquisition?

A. All net assets are revalued to fair value and must be amortized over
their useful lives.
B. Only net assets that had excess fair value over book value when
acquired by the parent must be amortized over their useful lives.
C. All depreciable net assets are revalued to fair value at date of
acquisition and must be amortized over their useful lives.
D. Only depreciable net assets that have excess fair value over book
value must be amortized over their useful lives.
E. Only assets that have excess fair value over book value must be
amortized over their useful lives.
34 Which of the following statements is false regarding push-down
. accounting?

A. Push-down accounting simplifies the consolidation

process.
B. Fewer worksheet entries are necessary when push-down accounting
is applied.
C. Push-down accounting provides better information for internal
evaluation.
D. Push-down accounting must be applied for all business combinations
under a pooling of interests.
E. Push-down proponents argue that a change in ownership creates a
new basis for subsidiary assets and liabilities.

35 Which of the following is false regarding contingent consideration in

. business combinations?

A. Contingent consideration payable in cash is reported under

liabilities.
B. Contingent consideration payable in stock shares is reported under
stockholders' equity.
C. Contingent consideration is recorded because of its substantial
probability of eventual payment.
D. The contingent consideration fair value is recognized as part of the
acquisition regardless of whether eventual payment is based on
future performance of the target firm or future stock price of the
acquirer.
E. Contingent consideration is reflected in the acquirer's balance sheet
at the present value of the potential expected future payment.
36 Factors that should be considered in determining the useful life of an
. intangible asset include

A. Legal, regulatory, or contractual

provisions.
B. The residual value of the
asset.
C. The entity's expected use of the intangible
asset.
D. The effects of obsolescence, competition, and technological
change.
E. All of the above choices are used in determining the useful life of an
intangible asset.

37 Consolidated net income using the equity method for an acquisition

. combination is computed as follows:

A. Parent company's income from its own operations plus the equity
from subsidiary's income recorded by the parent.
B. Parent's reported net
income.
C. Combined revenues less combined expenses less equity in
subsidiary's income less amortization of fair-value allocations in
excess of book value.
D. Parent's revenues less expenses for its own operations plus the
equity from subsidiary's income recorded by parent.
E. All of the
above.
38 Perry Company acquires 100% of the stock of Hurley Corporation on
. January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the consideration transferred in excess of book value acquired

at January 1, 2010.
A. $15
0.
B. $70
0.
C. $2,20
0.
D. $55
0.
E. $2,90
0.
39 Perry Company acquires 100% of the stock of Hurley Corporation on
. January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute goodwill, if any, at January 1, 2010.

A. $15
0.
B. $25
0.
C. $70
0.
D. $1,20
0.
E. $55
0.
40 Perry Company acquires 100% of the stock of Hurley Corporation on
. January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's inventory that would be reported in a

January 1, 2010, consolidated balance sheet.
A. $80
0.
B. $10
0.
C. $90
0.
D. $15
0.
E. $0
.
41 Perry Company acquires 100% of the stock of Hurley Corporation on
. January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's buildings that would be reported in a

December 31, 2010, consolidated balance sheet.
A. $1,56
0.
B. $1,26
0.
C. $1,44
0.
D. $1,16
0.
E. $1,14
0.
42 Perry Company acquires 100% of the stock of Hurley Corporation on
. January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's equipment that would be reported in a

December 31, 2010, consolidated balance sheet.
A. $1,00
0.
B. $1,25
0.
C. $87
5.
D. $1,12
5.
E. $75
0.
43 Perry Company acquires 100% of the stock of Hurley Corporation on
. January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of total expenses reported in an income

statement for the year ended December 31, 2010, in order to recognize
acquisition-date allocations of fair value and book value differences,

A. $14
0.
B. $19
0.
C. $26
0.
D. $28
5.
E. $31
0.
44 Perry Company acquires 100% of the stock of Hurley Corporation on
. January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's long-term liabilities that would be

reported in a December 31, 2010, consolidated balance sheet.
A. $1,80
0.
B. $1,70
0.
C. $1,72
5.
D. $1,67
5.
E. $3,50
0.
45 Perry Company acquires 100% of the stock of Hurley Corporation on
. January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's buildings that would be reported in a

December 31, 2011, consolidated balance sheet.
A. $1,62
0.
B. $1,38
0.
C. $1,32
0.
D. $1,08
0.
E. $1,50
0.
46 Perry Company acquires 100% of the stock of Hurley Corporation on
. January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's equipment that would be reported in a

December 31, 2011, consolidated balance sheet.
A. $0
.
B. $1,00
0.
C. $1,25
0.
D. $1,12
5.
E. $1,20
0.
47 Perry Company acquires 100% of the stock of Hurley Corporation on
. January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's land that would be reported in a

December 31, 2011, consolidated balance sheet.
A. $90
0.
B. $1,30
0.
C. $40
0.
D. $1,45
0.
E. $2,20
0.
48 Perry Company acquires 100% of the stock of Hurley Corporation on
. January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's long-term liabilities that would be

reported in a December 31, 2011, consolidated balance sheet.
 A. $1,70
0.
B. $1,80
0.
C. $1,65
0.
D. $1,75
0.
E. $3,50
0.

49 Kaye Company acquired 100% of Fiore Company on January 1, 2011.

. Kaye paid $1,000 excess consideration over book value which is being
amortized at $20 per year. Fiore reported net income of $400 in 2011
and paid dividends of $100.

Assume the equity method is applied. How much will Kaye's income
increase or decrease as a result of Fiore's operations?

A. $400
increase.
B. $300
increase.
C. $380
increase.
D. $280
increase.
E. $480
increase.
50 Kaye Company acquired 100% of Fiore Company on January 1, 2011.
. Kaye paid $1,000 excess consideration over book value which is being
amortized at $20 per year. Fiore reported net income of $400 in 2011
and paid dividends of $100.

Assume the partial equity method is applied. How much will Kaye's
income increase or decrease as a result of Fiore's operations?

A. $400
increase.
B. $300
increase.
C. $380
increase.
D. $280
increase.
E. $480
increase.

51 Kaye Company acquired 100% of Fiore Company on January 1, 2011.

. Kaye paid $1,000 excess consideration over book value which is being
amortized at $20 per year. Fiore reported net income of $400 in 2011
and paid dividends of $100.

Assume the initial value method is applied. How much will Kaye's
income increase or decrease as a result of Fiore's operations?

A. $400
increase.
B. $300
increase.
C. $380
increase.
D. $100
increase.
E. $210
increase.
52 Kaye Company acquired 100% of Fiore Company on January 1, 2011.
. Kaye paid $1,000 excess consideration over book value which is being
amortized at $20 per year. Fiore reported net income of $400 in 2011
and paid dividends of $100.

Assume the partial equity method is used. In the years following

acquisition, what additional worksheet entry must be made for
consolidation purposes that is not required for the equity method?

A. Entry
A.
B. Entry
B.
C. Entry
C.
D. Entry
D.
E. Entry
E.
53 Kaye Company acquired 100% of Fiore Company on January 1, 2011.
. Kaye paid $1,000 excess consideration over book value which is being
amortized at $20 per year. Fiore reported net income of $400 in 2011
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. Entry
A.
B. Entry
B.
C. Entry
C.
D. Entry
D.
E. Entry
E.
54 Hoyt Corporation agreed to the following terms in order to acquire the
. net assets of Brown Company on January 1, 2011:

(1.) To issue 400 shares of common stock ($10 par) with a fair value of
$45 per share.
(2.) To assume Brown's liabilities which have a fair value of $1,500.

On the date of acquisition, the consideration transferred for Hoyt's

acquisition of Brown would be

A. $18,00
0.
B. $16,50
0.
C. $20,00
0.
D. $18,50
0.
E. $19,50
0.
55 Following are selected accounts for Green Corporation and Vega
. Company as of December 31, 2013. Several of Green's accounts have
been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000, its
buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded
trademark with a 16-year remaining life. There was no goodwill
associated with this investment.

Compute the book value of Vega at January 1, 2009.

A. $997,50
0.
B. $857,50
0.
C. $1,200,00
0.
D. $1,600,00
0.
E. $827,50
0.
56 Following are selected accounts for Green Corporation and Vega
. Company as of December 31, 2013. Several of Green's accounts have
been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000, its
buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded
trademark with a 16-year remaining life. There was no goodwill
associated with this investment.

Compute the December 31, 2013, consolidated revenues.

A. $1,400,00
0.
B. $800,00
0.
C. $500,00
0.
D. $1,590,37
5.
E. $1,390,37
5.
57 Following are selected accounts for Green Corporation and Vega
. Company as of December 31, 2013. Several of Green's accounts have
been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000, its
buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded
trademark with a 16-year remaining life. There was no goodwill
associated with this investment.

Compute the December 31, 2013, consolidated total expenses.

A. $620,00
0.
B. $280,00
0.
C. $900,00
0.
D. $909,62
5.
E. $299,62
5.
58 Following are selected accounts for Green Corporation and Vega
. Company as of December 31, 2013. Several of Green's accounts have
been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000, its
buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded
trademark with a 16-year remaining life. There was no goodwill
associated with this investment.

Compute the December 31, 2013, consolidated buildings.

A. $1,037,50
0.
B. $1,007,50
0.
C. $1,000,00
0.
D. $1,022,50
0.
E. $1,012,50
0.
59 Following are selected accounts for Green Corporation and Vega
. Company as of December 31, 2013. Several of Green's accounts have
been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000, its
buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded
trademark with a 16-year remaining life. There was no goodwill
associated with this investment.

Compute the December 31, 2013, consolidated equipment.

A. $800,00
0.
B. $808,00
0.
C. $840,00
0.
D. $760,00
0.
E. $848,00
0.
60 Following are selected accounts for Green Corporation and Vega
. Company as of December 31, 2013. Several of Green's accounts have
been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000, its
buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded
trademark with a 16-year remaining life. There was no goodwill
associated with this investment.

Compute the December 31, 2013, consolidated land.

A. $220,00
0.
B. $180,00
0.
C. $670,00
0.
D. $630,00
0.
E. $450,00
0.
61 Following are selected accounts for Green Corporation and Vega
. Company as of December 31, 2013. Several of Green's accounts have
been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000, its
buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded
trademark with a 16-year remaining life. There was no goodwill
associated with this investment.

Compute the December 31, 2013, consolidated trademark.

A. $50,00
0.
B. $46,87
5.
C. $0
.
D. $34,37
5.
E. $37,50
0.
62 Following are selected accounts for Green Corporation and Vega
. Company as of December 31, 2013. Several of Green's accounts have
been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000, its
buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded
trademark with a 16-year remaining life. There was no goodwill
associated with this investment.

Compute the December 31, 2013, consolidated common stock.

A. $450,00
0.
B. $530,00
0.
C. $555,00
0.
D. $635,00
0.
E. $525,00
0.
63 Following are selected accounts for Green Corporation and Vega
. Company as of December 31, 2013. Several of Green's accounts have
been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000, its
buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded
trademark with a 16-year remaining life. There was no goodwill
associated with this investment.

Compute the December 31, 2013, consolidated additional paid-in

capital.

A. $210,00
0.
B. $75,00
0.
C. $1,102,50
0.
D. $942,50
0.
E. $525,00
0.
64 Following are selected accounts for Green Corporation and Vega
. Company as of December 31, 2013. Several of Green's accounts have
been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000, its
buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded
trademark with a 16-year remaining life. There was no goodwill
associated with this investment.

Compute the December 31, 2013 consolidated retained earnings.

A. $1,645,37
5.
B. $1,350,00
0.
C. $1,565,37
5.
D. $1,840,37
5.
E. $1,265,37
5.
65 Following are selected accounts for Green Corporation and Vega
. Company as of December 31, 2013. Several of Green's accounts have
been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000, its
buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an unrecorded
trademark with a 16-year remaining life. There was no goodwill
associated with this investment.

Compute the equity in Vega's income to be included in Green's

consolidated income statement for 2013.

A. $500,00
0.
B. $300,00
0.
C. $190,37
5.
 D. $200,00
0.
E. $290,37
5.

66 One company acquires another company in a combination accounted

. for as an acquisition. The acquiring company decides to apply the initial
value method in accounting for the combination. What is one reason
the acquiring company might have made this decision?

A. It is the only method allowed by the

SEC.
B. It is relatively easy to
apply.
C. It is the only internal reporting method allowed by generally
accepted accounting principles.
D. Operating results on the parent's financial records reflect
consolidated totals.
E. When the initial method is used, no worksheet entries are required in
the consolidation process.

67 One company acquires another company in a combination accounted

. for as an acquisition. The acquiring company decides to apply the
equity method in accounting for the combination. What is one reason
the acquiring company might have made this decision?

A. It is the only method allowed by the

SEC.
B. It is relatively easy to
apply.
C. It is the only internal reporting method allowed by generally
accepted accounting principles.
D. Operating results on the parent's financial records reflect
consolidated totals.
E. When the equity method is used, no worksheet entries are required
in the consolidation process.
68 When is a goodwill impairment loss recognized?
.

A. Annually on a systematic and rational

basis.
B. Never
.
C. If both the fair value of a reporting unit and its associated implied
goodwill fall below their respective carrying values.
D. If the fair value of a reporting unit falls below its original
acquisition price.
E. Whenever the fair value of the entity declines
significantly.

69 Which of the following will result in the recognition of an impairment

. loss on goodwill?

A. Goodwill amortization is to be recognized annually on a systematic

and rational basis.
B. Both the fair value of a reporting unit and its associated implied
goodwill fall below their respective carrying values.
C. The fair value of the entity declines
significantly.
D. The fair value of a reporting unit falls below the original
consideration transferred for the acquisition.
E. The entity is investigated by the SEC and its reputation has been
severely damaged.
70 Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January
. 4, 2010, at an amount in excess of Kenneth's fair value. On that date,
Kenneth has equipment with a book value of $90,000 and a fair value of
$120,000 (10-year remaining life). Goehler has equipment with a book
value of $800,000 and a fair value of $1,200,000 (10-year remaining
life). On December 31, 2011, Goehler has equipment with a book value
of $975,000 but a fair value of $1,350,000 and Kenneth has equipment
with a book value of $105,000 but a fair value of $125,000.

If Goehler applies the equity method in accounting for Kenneth, what is

the consolidated balance for the Equipment account as of December
31, 2011?

A. $1,080,00
0.
B. $1,104,00
0.
C. $1,100,00
0.
D. $1,468,00
0.
E. $1,475,00
0.
71 Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January
. 4, 2010, at an amount in excess of Kenneth's fair value. On that date,
Kenneth has equipment with a book value of $90,000 and a fair value of
$120,000 (10-year remaining life). Goehler has equipment with a book
value of $800,000 and a fair value of $1,200,000 (10-year remaining
life). On December 31, 2011, Goehler has equipment with a book value
of $975,000 but a fair value of $1,350,000 and Kenneth has equipment
with a book value of $105,000 but a fair value of $125,000.

If Goehler applies the partial equity method in accounting for Kenneth,

what is the consolidated balance for the Equipment account as of
December 31, 2011?

A. $1,080,00
0.
B. $1,104,00
0.
C. $1,100,00
0.
D. $1,468,00
0.
E. $1,475,00
0.
72 Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January
. 4, 2010, at an amount in excess of Kenneth's fair value. On that date,
Kenneth has equipment with a book value of $90,000 and a fair value of
$120,000 (10-year remaining life). Goehler has equipment with a book
value of $800,000 and a fair value of $1,200,000 (10-year remaining
life). On December 31, 2011, Goehler has equipment with a book value
of $975,000 but a fair value of $1,350,000 and Kenneth has equipment
with a book value of $105,000 but a fair value of $125,000.

If Goehler applies the initial value method in accounting for Kenneth,

what is the consolidated balance for the Equipment account as of
December 31, 2011?

A. $1,080,00
0.
B. $1,104,00
0.
C. $1,100,00
0.
D. $1,468,00
0.
E. $1,475,00
0.

73 How is the fair value allocation of an intangible asset allocated to

. expense when the asset has no legal, regulatory, contractual,
competitive, economic, or other factors that limit its life?

A. Equally over 20
years.
B. Equally over 40
years.
C. Equally over 20 years with an annual impairment
review.
D. No amortization, but annually reviewed for impairment and adjusted
accordingly.
E. No amortization over an indefinite
period time.
74 Harrison, Inc. acquires 100% of the voting stock of Rhine Company on
. January 1, 2010 for $400,000 cash. A contingent payment of $16,500
will be paid on April 15, 2011 if Rhine generates cash flows from
operations of $27,000 or more in the next year. Harrison estimates that
there is a 20% probability that Rhine will generate at least $27,000 next
year, and uses an interest rate of 5% to incorporate the time value of
money. The fair value of $16,500 at 5%, using a probability weighted
approach, is $3,142.

What will Harrison record as its Investment in Rhine on January 1,

2010?

A. $400,00
0.
B. $403,14
2.
C. $406,00
0.
D. $409,14
2.
E. $416,50
0.
75 Harrison, Inc. acquires 100% of the voting stock of Rhine Company on
. January 1, 2010 for $400,000 cash. A contingent payment of $16,500
will be paid on April 15, 2011 if Rhine generates cash flows from
operations of $27,000 or more in the next year. Harrison estimates that
there is a 20% probability that Rhine will generate at least $27,000 next
year, and uses an interest rate of 5% to incorporate the time value of
money. The fair value of $16,500 at 5%, using a probability weighted
approach, is $3,142.

Assuming Rhine generates cash flow from operations of $27,200 in

2010, how will Harrison record the $16,500 payment of cash on April
15, 2011 in satisfaction of its contingent obligation?

A. Debit Contingent performance obligation $16,500, and Credit Cash

$16,500.
B. Debit Contingent performance obligation $3,142, debit Loss from
revaluation of contingent performance obligation $13,358, and Credit
Cash $16,500.
C. Debit Investment in Subsidiary and Credit Cash,
$16,500.
D. Debit Goodwill and Credit Cash,
$16,500.
E. No
entry.
76 Harrison, Inc. acquires 100% of the voting stock of Rhine Company on
. January 1, 2010 for $400,000 cash. A contingent payment of $16,500
will be paid on April 15, 2011 if Rhine generates cash flows from
operations of $27,000 or more in the next year. Harrison estimates that
there is a 20% probability that Rhine will generate at least $27,000 next
year, and uses an interest rate of 5% to incorporate the time value of
money. The fair value of $16,500 at 5%, using a probability weighted
approach, is $3,142.

When recording consideration transferred for the acquisition of Rhine

on January 1, 2010, Harrison will record a contingent performance
obligation in the amount of:

A. $628.4
0
B. $2,671.
60
C. $3,142.
00
D. $13,358.
00
E. $16,500.
00
77 Beatty, Inc. acquires 100% of the voting stock of Gataux Company on
. January 1, 2010 for $500,000 cash. A contingent payment of $12,000
will be paid on April 1, 2011 if Gataux generates cash flows from
operations of $26,500 or more in the next year. Beatty estimates that
there is a 30% probability that Gataux will generate at least $26,500
next year, and uses an interest rate of 4% to incorporate the time value
of money. The fair value of $12,000 at 4%, using a probability weighted
approach, is $3,461.

What will Beatty record as its Investment in Gataux on January 1,

2010?

A. $500,00
0.
B. $503,46
1.
C. $512,00
0.
D. $515,46
1.
E. $526,50
0.
78 Beatty, Inc. acquires 100% of the voting stock of Gataux Company on
. January 1, 2010 for $500,000 cash. A contingent payment of $12,000
will be paid on April 1, 2011 if Gataux generates cash flows from
operations of $26,500 or more in the next year. Beatty estimates that
there is a 30% probability that Gataux will generate at least $26,500
next year, and uses an interest rate of 4% to incorporate the time value
of money. The fair value of $12,000 at 4%, using a probability weighted
approach, is $3,461.

Assuming Gataux generates cash flow from operations of $27,200 in

2010, how will Beatty record the $12,000 payment of cash on April 1,
2011 in satisfaction of its contingent obligation?

A. Debit Contingent performance obligation $3,461, debit Goodwill

$8,539, and Credit Cash $12,000.
B. Debit Contingent performance obligation $3,461, debit Loss from
revaluation of contingent performance obligation $8,539, and Credit
Cash $12,000.
C. Debit Goodwill and Credit Cash,
$12,000.
D. Debit Goodwill $27,200, credit Contingent performance obligation
$15,200, and Credit Cash $12,000.
E. No
entry.
79 Beatty, Inc. acquires 100% of the voting stock of Gataux Company on
. January 1, 2010 for $500,000 cash. A contingent payment of $12,000
will be paid on April 1, 2011 if Gataux generates cash flows from
operations of $26,500 or more in the next year. Beatty estimates that
there is a 30% probability that Gataux will generate at least $26,500
next year, and uses an interest rate of 4% to incorporate the time value
of money. The fair value of $12,000 at 4%, using a probability weighted
approach, is $3,461.

Beatty, Inc. acquires 100% of the voting stock of Gataux Company on

January 1, 2010 for $500,000 cash. A contingent payment of $12,000
will be paid on April 1, 2011 if Gataux generates cash flows from
operations of $26,500 or more in the next year. Beatty estimates that
there is a 30% probability that Gataux will generate at least $26,500
next year, and uses an interest rate of 4% to incorporate the time value
of money. The fair value of $12,000 at 4%, using a probability weighted
approach, is $3,461.

When recording consideration transferred for the acquisition of Gataux

on January 1, 2010, Beatty will record a contingent performance
obligation in the amount of:

A. $692.2
0
B. $3,040.
00
C. $3,461.
00
D. $12,000.
00
E. $15,200.
00
80 Prince Company acquires Duchess, Inc. on January 1, 2009. The
. consideration transferred exceeds the fair value of Duchess' net assets.
On that date, Prince has a building with a book value of $1,200,000 and
a fair value of $1,500,000. Duchess has a building with a book value of
$400,000 and fair value of $500,000.

If push-down accounting is used, what amounts in the Building account

appear in Duchess' separate balance sheet and in the consolidated
balance sheet immediately after acquisition?

A. $400,000 and
$1,600,000.
B. $500,000 and
$1,700,000.
C. $400,000 and
$1,700,000.
D. $500,000 and
$2,000,000.
E. $500,000 and
$1,600,000.
81 Prince Company acquires Duchess, Inc. on January 1, 2009. The
. consideration transferred exceeds the fair value of Duchess' net assets.
On that date, Prince has a building with a book value of $1,200,000 and
a fair value of $1,500,000. Duchess has a building with a book value of
$400,000 and fair value of $500,000.

If push-down accounting is not used, what amounts in the Building

account appear on Duchess' separate balance sheet and on the
consolidated balance sheet immediately after acquisition?

A. $400,000 and
$1,600,000.
B. $500,000 and
$1,700,000.
C. $400,000 and
$1,700,000.
D. $500,000 and
$2,000,000.
E. $500,000 and
$1,600,000.
82 Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
. on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

If Watkins pays $450,000 in cash for Glen, what amount would be

represented as the subsidiary's Building in a consolidation at December
31, 2012, assuming the book value of the building at that date is still
$200,000?

A. $200,00
0.
B. $285,00
0.
C. $290,00
0.
D. $295,00
0.
E. $300,00
0.
83 Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
. on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

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, 2012, assuming the book value of the building at that date is still
$200,000?

A. $200,00
0.
B. $285,00
0.
C. $260,00
0.
D. $268,00
0.
E. $300,00
0.
84 Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
. on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

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, 2012, assuming the book value of the equipment at that
date is still $80,000?

A. $70,00
0.
B. $73,50
0.
C. $75,00
0.
D. $76,50
0.
E. $80,00
0.
85 Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
. on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

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, 2012?

A. $(5,000
.)
B. $80,00
0.
C. $75,00
0.
D. $73,50
0.
E. $(3,500
.)
86 Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
. on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

If Watkins pays $300,000 in cash for Glen, at what amount would the
subsidiary's Building be represented in a January 2, 2010
consolidation?

A. $200,00
0.
B. $225,00
0.
C. $273,00
0.
D. $279,00
0.
E. $300,00
0.
87 Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
. on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

If Watkins pays $450,000 in cash for Glen, at what amount would Glen's
Inventory acquired be represented in a December 31, 2010
consolidated balance sheet?

A. $40,00
0.
B. $50,00
0.
C. $0
.
D. $10,00
0.
E. $90,00
0.
88 Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
. on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in
net income and pays $20,000 in dividends during 2010, what amount
would be reflected in consolidated net income for 2010 as a result of
the acquisition?

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.
89 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.

90 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
.
Essay Questions

91 For an acquisition when the subsidiary retains its incorporation, which

. method of internal recordkeeping is the easiest for the parent to use?

92 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?

93 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?
94 From which methods can a parent choose for its internal recordkeeping
. related to the operations of a subsidiary?

95 What accounting method requires a subsidiary to record acquisition fair

. value allocations and the amortization of allocations in its internal
accounting records?

96 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?
97 What advantages might push-down accounting offer for internal
. reporting?

98 What is the basic objective of all consolidations?

.

99 Yules Co. acquired Noel Co. in an acquisition transaction. 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.
100 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?

101 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?
102 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?

103 An acquisition transaction 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.

104 Why is push-down accounting a popular internal reporting technique?

.

Short Answer Questions

105 On January 1, 2010, Jumper Co. acquired all of the common stock of
. Cable Corp. for $540,000. Annual amortization associated with the
purchase amounted to $1,800. During 2010, Cable earned net income
of $54,000 and paid dividends of $24,000. Cable's net income and
dividends for 2011 were $86,000 and $24,000, respectively.

Required:

Assuming that Jumper decided to use the partial equity method,

prepare a schedule to show the balance in the investment account at
the end of 2011.
106 Hanson Co. acquired all of the common stock of Roberts Inc. on
. January 1, 2010, transferring consideration in an amount slightly more
than the fair value of Roberts' net assets. At that time, Roberts had
buildings with a twenty-year useful life, a book value of $600,000, and
a fair value of $696,000. On December 31, 2011, Roberts had
buildings with a book value of $570,000 and a fair value of $648,000.
On that date, Hanson had buildings with a book value of $1,878,000
and a fair value of $2,160,000.

Required:

What amount should be shown for buildings on the consolidated

balance sheet dated December 31, 2011?
107 Carnes Co. decided to use the partial equity method to account for its
. investment in Domino Corp. An unamortized trademark associated
with the acquisition was $30,000, and Carnes decided to amortize the
trademark over ten years. For 2011, Carnes' Equity in Subsidiary
Earnings was $78,000.

Required:

What balance would have been in the Equity in Subsidiary Earnings

account if Carnes had used the equity method?
108 Fesler Inc. acquired all of the outstanding common stock of Pickett
. Company on January 1, 2010. Annual amortization of $22,000 resulted
from this transaction. On the date of the acquisition, Fesler reported
retained earnings of $520,000 while Pickett reported a $240,000
balance for retained earnings. Fesler reported net income of $100,000
in 2010 and $68,000 in 2011, and paid dividends of $25,000 in
dividends each year. Pickett reported net income of $24,000 in 2010
and $36,000 in 2011, and paid dividends of $10,000 in dividends each
year.
Assume that Fesler's reported net income includes Equity in Subsidiary
Income.

If the parent's net income reflected use of the equity method, what
were the consolidated retained earnings on December 31, 2011?
109 Fesler Inc. acquired all of the outstanding common stock of Pickett
. Company on January 1, 2010. Annual amortization of $22,000 resulted
from this transaction. On the date of the acquisition, Fesler reported
retained earnings of $520,000 while Pickett reported a $240,000
balance for retained earnings. Fesler reported net income of $100,000
in 2010 and $68,000 in 2011, and paid dividends of $25,000 in
dividends each year. Pickett reported net income of $24,000 in 2010
and $36,000 in 2011, and paid dividends of $10,000 in dividends each
year.
Assume that Fesler's reported net income includes Equity in Subsidiary
Income.

If the parent's net income reflected use of the partial equity method,
what were the consolidated retained earnings on December 31, 2011?
110 Fesler Inc. acquired all of the outstanding common stock of Pickett
. Company on January 1, 2010. Annual amortization of $22,000 resulted
from this transaction. On the date of the acquisition, Fesler reported
retained earnings of $520,000 while Pickett reported a $240,000
balance for retained earnings. Fesler reported net income of $100,000
in 2010 and $68,000 in 2011, and paid dividends of $25,000 in
dividends each year. Pickett reported net income of $24,000 in 2010
and $36,000 in 2011, and paid dividends of $10,000 in dividends each
year.
Assume that Fesler's reported net income includes Equity in Subsidiary
Income.

If the parent's net income reflected use of the initial value method,
what were the consolidated retained earnings on December 31, 2011?
111 Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1,
. 2010, by issuing 11,000 shares of $1 par value common stock. Jaynes'
shares had a $17 per share fair value. On that date, Aaron reported a
net book value of $120,000. However, its equipment (with a five-year
remaining life) was undervalued by $6,000 in the company's
accounting records. Any excess of consideration transferred over fair
value of assets and liabilities is assigned to an unrecorded patent to be
amortized over ten years.

What balance would Jaynes' Investment in Aaron Co. account have

shown on December 31, 2010, when the equity method was applied
for this acquisition?
112 Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1,
. 2010, by issuing 11,000 shares of $1 par value common stock. Jaynes'
shares had a $17 per share fair value. On that date, Aaron reported a
net book value of $120,000. However, its equipment (with a five-year
remaining life) was undervalued by $6,000 in the company's
accounting records. Any excess of consideration transferred over fair
value of assets and liabilities is assigned to an unrecorded patent to be
amortized over ten years.

What was consolidated net income for the year ended December 31,
2011?
113 Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1,
. 2010, by issuing 11,000 shares of $1 par value common stock. Jaynes'
shares had a $17 per share fair value. On that date, Aaron reported a
net book value of $120,000. However, its equipment (with a five-year
remaining life) was undervalued by $6,000 in the company's
accounting records. Any excess of consideration transferred over fair
value of assets and liabilities is assigned to an unrecorded patent to be
amortized over ten years.

What was consolidated equipment as of December 31, 2011?

114 Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1,
. 2010, by issuing 11,000 shares of $1 par value common stock. Jaynes'
shares had a $17 per share fair value. On that date, Aaron reported a
net book value of $120,000. However, its equipment (with a five-year
remaining life) was undervalued by $6,000 in the company's
accounting records. Any excess of consideration transferred over fair
value of assets and liabilities is assigned to an unrecorded patent to be
amortized over ten years.

What was the total for consolidated patents as of December 31, 2011?
115 Utah Inc. acquired all of the outstanding common stock of Trimmer
. Corp. on January 1, 2009. At that date, Trimmer owned only three
assets and had no liabilities:

If Utah paid $300,000 in cash for Trimmer, what allocation should have
been assigned to the subsidiary's Building account and its Equipment
account in a December 31, 2011 consolidation?
116 Matthews Co. acquired all of the common stock of Jackson Co. on
. January 1, 2010. As of that date, Jackson had the following trial
balance:

During 2010, Jackson reported net income of $96,000 while paying

dividends of $12,000. During 2011, Jackson reported net income of
$132,000 while paying dividends of $36,000.
Assume that Matthews Co. acquired the common stock of Jackson Co.
for $588,000 in cash. As of January 1, 2010, Jackson's land had a fair
value of $102,000, its buildings were valued at $188,000, and its
equipment was appraised at $216,000. Any excess of consideration
transferred over fair value of assets and liabilities acquired is due to an
unamortized patent to be amortized over 10 years.
Matthews decided to use the equity method for this investment.

Required:

(A.) Prepare consolidation worksheet entries for December 31, 2010.

(B.) Prepare consolidation worksheet entries for December 31, 2011.
117 On January 1, 2009, Rand Corp. issued shares of its common stock to
. acquire all of the outstanding common stock of Spaulding Inc.
Spaulding's book value was only $140,000 at the time, but Rand
issued 12,000 shares having a par value of $1 per share and a fair
value of $20 per share. Rand was willing to convey these shares
because it felt that buildings (ten-year life) were undervalued on
Spaulding's records by $60,000 while equipment (five-year life) was
undervalued by $25,000. Any consideration transferred over fair value
of identified net assets acquired is assigned to goodwill.
Following are the individual financial records for these two companies
for the year ended December 31, 2012.

Required:

Prepare a consolidation worksheet for this business combination.

118 Pritchett Company recently acquired three businesses, recognizing
. goodwill in each acquisition. Destin has allocated its acquired goodwill
to its three reporting units: Apple, Banana, and Carrot. Pritchett
provides the following information in performing the 2011 annual
review for impairment:

Which of Pritchett's reporting units require both steps to test for

goodwill impairment?
119 Pritchett Company recently acquired three businesses, recognizing
. goodwill in each acquisition. Destin has allocated its acquired goodwill
to its three reporting units: Apple, Banana, and Carrot. Pritchett
provides the following information in performing the 2011 annual
review for impairment:

How much goodwill impairment should Pritchett report for 2011?

120 On 4/1/09, Sey Mold Corporation acquired 100% of DotDot.Com for
. $2,000,000 cash. On the date of acquisition, DotDot's net book value
was $900,000. DotDot's assets included land that was undervalued by
$300,000, a building that was undervalued by $400,000, and
equipment that was overvalued by $50,000. The building had a
remaining useful life of 8 years and the equipment had a remaining
useful life of 4 years. Any excess fair value over consideration
transferred is allocated to an undervalued patent and is amortized
over 5 years.

Determine the amortization expense related to the combination at the

year-end date of 12/31/09.
121 On 4/1/09, Sey Mold Corporation acquired 100% of DotDot.Com for
. $2,000,000 cash. On the date of acquisition, DotDot's net book value
was $900,000. DotDot's assets included land that was undervalued by
$300,000, a building that was undervalued by $400,000, and
equipment that was overvalued by $50,000. The building had a
remaining useful life of 8 years and the equipment had a remaining
useful life of 4 years. Any excess fair value over consideration
transferred is allocated to an undervalued patent and is amortized
over 5 years.

Determine the amortization expense related to the combination at the

year-end date of 12/31/13.
122 On 4/1/09, Sey Mold Corporation acquired 100% of DotDot.Com for
. $2,000,000 cash. On the date of acquisition, DotDot's net book value
was $900,000. DotDot's assets included land that was undervalued by
$300,000, a building that was undervalued by $400,000, and
equipment that was overvalued by $50,000. The building had a
remaining useful life of 8 years and the equipment had a remaining
useful life of 4 years. Any excess fair value over consideration
transferred is allocated to an undervalued patent and is amortized
over 5 years.

Determine the amortization expense related to the consolidation at the

year-end date of 12/31/19.
123 For each of the following situations, select the best answer that applies
. to consolidating financial information subsequent to the acquisition
date:

(A) Initial value method.

(B) Partial equity method.
(C) Equity method.
(D) Initial value method and partial equity method but not equity
method.
(E) Partial equity method and equity method but not initial value
method.
(F) Initial value method, partial equity method, and equity method.

_____1. Method(s) available to the parent for internal record-keeping.

_____2. Easiest internal record-keeping method to apply.
_____3. Income of the subsidiary is recorded by the parent when
earned.
_____4. Designed to create a parallel between the parent's investment
accounts and changes in the underlying equity of the acquired
company.
_____5. For years subsequent to acquisition, requires the *C entry.
_____6. Uses the cash basis for income recognition.
_____7. Investment account remains at initially recorded amount.
_____8. Dividends received by the parent from the subsidiary reduce
the parent's investment account.
_____9. Often referred to in accounting as a single-line consolidation.
_____10. Increases the investment account for subsidiary earnings, but
does not decrease the subsidiary account for equity adjustments such
as amortizations.
 Chapter 03 Consolidations - Subsequent to the Date of
Acquisition Answer Key

Multiple Choice Questions

1. Which one of the following accounts would not appear in the

consolidated financial statements at the end of the first fiscal period
of the combination?

A. Goodwil
l.
B. Equipmen
t.
C. Investment in
Subsidiary.
D. Common
Stock.
E. Additional Paid-In
Capital.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
2. Which of the following internal record-keeping methods can a parent
choose to account for a subsidiary acquired in a business
combination?

A. initial value or book

value.
B. initial value, lower-of-cost-or-market-value, or
equity.
C. initial value, equity, or partial
equity.
D. initial value, equity, or book
value.
E. initial value, lower-of-cost-or-market-value, or
partial equity.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.

3. Which one of the following varies between the equity, initial value,
and partial equity methods of accounting for an investment?

A. the amount of consolidated net

income.
B. total assets on the consolidated balance
sheet.
C. total liabilities on the consolidated balance
sheet.
D. the balance in the investment account on the
parent's books.
E. the amount of consolidated cost of
goods sold.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
4. Under the partial equity method, the parent recognizes income when

A. dividends are received from the

investee.
B. dividends are declared by the
investee.
C. the related expense has been
incurred.
D. the related contract is signed by the
subsidiary.
E. it is earned by the
subsidiary.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.

5. Push-down accounting is concerned with the

A. impact of the purchase on the subsidiary's financial

statements.
B. recognition of goodwill by the
parent.
C. correct consolidation of the financial
statements.
D. impact of the purchase on the separate financial statements of
the parent.
E. recognition of dividends received from the
subsidiary.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is
appropriate.
6. Racer Corp. acquired all of the common stock of Tangiers Co. in 2009.
Tangiers maintained its incorporation. Which of Racer's account
balances would vary between the equity method and the initial value
method?

A. Goodwill, Investment in Tangiers Co., and Retained

Earnings.
B. Expenses, Investment in Tangiers Co., and Equity in Subsidiary
Earnings.
C. Investment in Tangiers Co., Equity in Subsidiary Earnings, and
Retained Earnings.
D. Common Stock, Goodwill, and Investment in
Tangiers Co.
E. Expenses, Goodwill, and Investment in
Tangiers Co.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: b. The initial value method.

7. How does the partial equity method differ from the equity method?

A. In the total assets reported on the consolidated

balance sheet.
B. In the treatment of
dividends.
C. In the total liabilities reported on the consolidated
balance sheet.
D. Under the partial equity method, subsidiary income does not
increase the balance in the parent's investment account.
E. Under the partial equity method, the balance in the investment
account is not decreased by amortization on allocations made in
the acquisition of the subsidiary.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
 Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: c. The partial equity method.

8. Jansen Inc. acquired all of the outstanding common stock of Merriam

Co. on January 1, 2010, for $257,000. Annual amortization of $19,000
resulted from this acquisition. Jansen reported net income of $70,000
in 2010 and $50,000 in 2011 and paid $22,000 in dividends each
year. Merriam reported net income of $40,000 in 2010 and $47,000
in 2011 and paid $10,000 in dividends each year. What is the
Investment in Merriam Co. balance on Jansen's books as of December
31, 2011, if the equity method has been applied?

A. $286,00
0.
B. $295,00
0.
C. $276,00
0.
D. $344,00
0.
E. $324,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
9. Velway Corp. acquired Joker Inc. on January 1, 2010. The parent paid
more than the fair value of the subsidiary's net assets. On that date,
Velway had equipment with a book value of $500,000 and a fair value
of $640,000. Joker had equipment with a book value of $400,000 and
a fair value of $470,000. Joker decided to use push-down accounting.
Immediately after the acquisition, what Equipment amount would
appear on Joker's separate balance sheet and on Velway's
consolidated balance sheet, respectively?

A. $400,000 and
$900,000
B. $400,000 and
$970,000
C. $470,000 and
$900,000
D. $470,000 and
$970,000
E. $470,000 and
$1,040,000
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is
appropriate.
10. Parrett Corp. acquired one hundred percent of Jones Inc. on January 1,
2009, at a price in excess of the subsidiary's fair value. On that date,
Parrett's equipment (ten-year life) had a book value of $360,000 but
a fair value of $480,000. Jones had equipment (ten-year life) with a
book value of $240,000 and a fair value of $350,000. Parrett used the
partial equity method to record its investment in Jones. On December
31, 2011, Parrett had equipment with a book value of $250,000 and a
fair value of $400,000. Jones had equipment with a book value of
$170,000 and a fair value of $320,000. What is the consolidated
balance for the Equipment account as of December 31, 2011?

A. $387,00
0.
B. $497,00
0.
C. $508.00
0.
D. $537,00
0.
E. $570,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: c. The partial equity method.
11. On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co.
Kaltop maintained separate incorporation. Cale used the equity
method to account for the investment. The following information is
available for Kaltop's assets, liabilities, and stockholders' equity
accounts:

Kaltop earned net income for 2010 of $126,000 and paid dividends of
$48,000 during the year.

The 2010 total amortization of allocations is calculated to be

A. $4,00
0.
B. $6,40
0.
C. $(2,400
).
D. $(1,000
).
E. $3,80
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.

12. On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co.
Kaltop maintained separate incorporation. Cale used the equity
method to account for the investment. The following information is
available for Kaltop's assets, liabilities, and stockholders' equity
accounts:

Kaltop earned net income for 2010 of $126,000 and paid dividends of
$48,000 during the year.

In Cale's accounting records, what amount would appear on

December 31, 2010 for equity in subsidiary earnings?

A. $77,00
0.
B. $79,00
0.
C. $125,00
0.
D. $127,00
0.
E. $81,80
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
 Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
13. On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co.
Kaltop maintained separate incorporation. Cale used the equity
method to account for the investment. The following information is
available for Kaltop's assets, liabilities, and stockholders' equity
accounts:

Kaltop earned net income for 2010 of $126,000 and paid dividends of
$48,000 during the year.

What is the balance in Cale's investment in subsidiary account at the

end of 2010?

A. $1,099,00
0.
B. $1,020,00
0.
C. $1,096,20
0.
D. $1,098,00
0.
E. $1,144,40
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
 maintain its investment in subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
14. On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co.
Kaltop maintained separate incorporation. Cale used the equity
method to account for the investment. The following information is
available for Kaltop's assets, liabilities, and stockholders' equity
accounts:

Kaltop earned net income for 2010 of $126,000 and paid dividends of
$48,000 during the year.

At the end of 2010, the consolidation entry to eliminate Cale's

accrual of Kaltop's earnings would include a credit to Investment in
Kaltop Co. for

A. $124,40
0.
B. $126,00
0.
C. $127,00
0.
D. $76,40
0.
E. $0
.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
 Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.

15. On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co.
Kaltop maintained separate incorporation. Cale used the equity
method to account for the investment. The following information is
available for Kaltop's assets, liabilities, and stockholders' equity
accounts:

Kaltop earned net income for 2010 of $126,000 and paid dividends of
$48,000 during the year.

If Cale Corp. had net income of $444,000 in 2010, exclusive of the

investment, what is the amount of consolidated net income?

A. $569,00
0.
B. $570,00
0.
C. $571,00
0.
D. $566,40
0.
E. $444,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
 AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.

16. On January 1, 2010, Franel Co. acquired all of the common stock of
Hurlem Corp. For 2010, Hurlem earned net income of $360,000 and
paid dividends of $190,000. Amortization of the patent allocation that
was included in the acquisition was $6,000.

How much difference would there have been in Franel's income with
regard to the effect of the investment, between using the equity
method or using the initial value method of internal recordkeeping?

A. $190,00
0.
B. $360,00
0.
C. $164,00
0.
D. $354,00
0.
E. $150,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: b. The initial value method.
17. On January 1, 2010, Franel Co. acquired all of the common stock of
Hurlem Corp. For 2010, Hurlem earned net income of $360,000 and
paid dividends of $190,000. Amortization of the patent allocation that
was included in the acquisition was $6,000.

How much difference would there have been in Franel's income with
regard to the effect of the investment, between using the equity
method or using the partial equity method of internal recordkeeping?

A. $170,00
0.
B. $354,00
0.
C. $164,00
0.
D. $6,00
0.
E. $174,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: c. The partial equity method.
18. Cashen Co. paid $2,400,000 to acquire all of the common stock of
Janex Corp. on January 1, 2010. Janex's reported earnings for 2010
totaled $432,000, and it paid $120,000 in dividends during the year.
The amortization of allocations related to the investment was
$24,000. Cashen's net income, not including the investment, was
$3,180,000, and it paid dividends of $900,000.

On the consolidated financial statements for 2010, what amount

should have been shown for Equity in Subsidiary Earnings?

A. $432,00
0.
B. $-
0-
C. $408,00
0.
D. $120,00
0.
E. $288,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
19. Cashen Co. paid $2,400,000 to acquire all of the common stock of
Janex Corp. on January 1, 2010. Janex's reported earnings for 2010
totaled $432,000, and it paid $120,000 in dividends during the year.
The amortization of allocations related to the investment was
$24,000. Cashen's net income, not including the investment, was
$3,180,000, and it paid dividends of $900,000.

On the consolidated financial statements for 2010, what amount

should have been shown for consolidated dividends?

A. $900,00
0.
B. $1,020,00
0.
C. $876,00
0.
D. $996,00
0.
E. $948,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
20. Jans Inc. acquired all of the outstanding common stock of Tysk Corp.
on January 1, 2009, for $372,000. Equipment with a ten-year life was
undervalued on Tysk's financial records by $46,000. Tysk also owned
an unrecorded customer list with an assessed fair value of $67,000
and an estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2009 and $216,000
in 2010. Dividends of $70,000 were paid in each of these two years.
Selected account balances as of December 31, 2011, for the two
companies follow.

If the partial equity method had been applied, what was 2011
consolidated net income?

A. $840,00
0.
B. $768,40
0.
C. $822,00
0.
D. $240,00
0.
E. $600,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: c. The partial equity method.
21. Jans Inc. acquired all of the outstanding common stock of Tysk Corp.
on January 1, 2009, for $372,000. Equipment with a ten-year life was
undervalued on Tysk's financial records by $46,000. Tysk also owned
an unrecorded customer list with an assessed fair value of $67,000
and an estimated remaining life of five years.
Tysk earned reported net income of $180,000 in 2009 and $216,000
in 2010. Dividends of $70,000 were paid in each of these two years.
Selected account balances as of December 31, 2011, for the two
companies follow.

If the equity method had been applied, what would be the

Investment in Tysk Corp. account balance within the records of Jans
at the end of 2011?

A. $612,10
0.
B. $744,00
0.
C. $774,15
0.
D. $372,00
0.
E. $844,15
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
22. Red Co. acquired 100% of Green, Inc. on January 1, 2010. On that
date, Green had inventory with a book value of $42,000 and a fair
value of $52,000. This inventory had not yet been sold at December
31, 2010. Also, on the date of acquisition, Green had a building with a
book value of $200,000 and a fair value of $390,000. Green had
equipment with a book value of $350,000 and a fair value of
$280,000. The building had a 10-year remaining useful life and the
equipment had a 5-year remaining useful life. How much total
expense will be in the consolidated financial statements for the year
ended December 31, 2010 related to the acquisition allocations of
Green?

A. $43,00
0.
B. $33,00
0.
C. $5,00
0.
D. $15,00
0.
E. 0
.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
23. All of the following are acceptable methods to account for a majority-
owned investment in subsidiary except

A. The equity
method.
B. The initial value
method.
C. The partial equity
method.
D. The fair-value
method.
E. Book value
method.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.

24. Under the equity method of accounting for an investment,

A. The investment account remains at initial

value.
B. Dividends received are recorded as
revenue.
C. Goodwill is amortized over 20
years.
D. Income reported by the subsidiary increases the investment
account.
E. Dividends received increase the investment
account.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
25. Under the partial equity method of accounting for an investment,

A. The investment account remains at initial

value.
B. Dividends received are recorded as
revenue.
C. The allocations for excess fair value allocations over book value of
net assets at date of acquisition are applied over their useful lives
to reduce the investment account.
D. Amortization of the excess of fair value allocations over book value
is ignored in regard to the investment account.
E. Dividends received increase the investment
account.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.

26. Under the initial value method, when accounting for an investment in
a subsidiary,

A. Dividends received by the subsidiary decrease the investment

account.
B. The investment account is adjusted to fair value at
year-end.
C. Income reported by the subsidiary increases the investment
account.
D. The investment account remains at initial
value.
E. Dividends received are
ignored.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
27. According to GAAP regarding amortization of goodwill and other
intangible assets, which of the following statements is true?

A. Goodwill recognized in consolidation must be amortized over

20 years.
B. Goodwill recognized in consolidation must be expensed in the
period of acquisition.
C. Goodwill recognized in consolidation will not be amortized but
subject to an annual test for impairment.
D. Goodwill recognized in consolidation can never be
written off.
E. Goodwill recognized in consolidation must be amortized over
40 years.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.
28. When a company applies the initial method in accounting for its
investment in a subsidiary and the subsidiary reports income in
excess of dividends paid, what entry would be made for a
consolidation worksheet?

A. A
above
B. B
above
C. C
above
D. D
above
E. E
above
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: b. The initial value method.
29. When a company applies the initial value method in accounting for its
investment in a subsidiary and the subsidiary reports income less
than dividends paid, what entry would be made for a consolidation
worksheet?

A. A
above
B. B
above
C. C
above
D. D
above
E. E
above
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: b. The initial value method.
30. When a company applies the partial equity method in accounting for
its investment in a subsidiary and the subsidiary's equipment has a
fair value greater than its book value, what consolidation worksheet
entry is made in a year subsequent to the initial acquisition of the
subsidiary?

A. A
above
B. B
above
C. C
above
D. D
above
E. E
above
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: c. The partial equity method.
31. When a company applies the partial equity method in accounting for
its investment in a subsidiary and initial value, book values, and fair
values of net assets acquired are all equal, what consolidation
worksheet entry would be made?

A. A
above
B. B
above
C. C
above
D. D
above
E. E
above
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: c. The partial equity method.
32. When consolidating a subsidiary under the equity method, which of
the following statements is true?

A. Goodwill is never
recognized.
B. Goodwill required is amortized over 20
years.
C. Goodwill may be recorded on the parent company's
books.
D. The value of any goodwill should be tested annually for
impairment in value.
E. Goodwill should be expensed in the year of
acquisition.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.

33. When consolidating a subsidiary under the equity method, which of

the following statements is true with regard to the subsidiary
subsequent to the year of acquisition?

A. All net assets are revalued to fair value and must be amortized
over their useful lives.
B. Only net assets that had excess fair value over book value when
acquired by the parent must be amortized over their useful lives.
C. All depreciable net assets are revalued to fair value at date of
acquisition and must be amortized over their useful lives.
D. Only depreciable net assets that have excess fair value over book
value must be amortized over their useful lives.
E. Only assets that have excess fair value over book value must be
amortized over their useful lives.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
 has applied in its internal records: a. The equity method.

34. Which of the following statements is false regarding push-down

accounting?

A. Push-down accounting simplifies the consolidation

process.
B. Fewer worksheet entries are necessary when push-down
accounting is applied.
C. Push-down accounting provides better information for internal
evaluation.
D. Push-down accounting must be applied for all business
combinations under a pooling of interests.
E. Push-down proponents argue that a change in ownership creates a
new basis for subsidiary assets and liabilities.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is
appropriate.

35. Which of the following is false regarding contingent consideration in

business combinations?

A. Contingent consideration payable in cash is reported under

liabilities.
B. Contingent consideration payable in stock shares is reported under
stockholders' equity.
C. Contingent consideration is recorded because of its substantial
probability of eventual payment.
D. The contingent consideration fair value is recognized as part of the
acquisition regardless of whether eventual payment is based on
future performance of the target firm or future stock price of the
acquirer.
E. Contingent consideration is reflected in the acquirer's balance
sheet at the present value of the potential expected future
payment.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
 AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to
a business acquisition.

36. Factors that should be considered in determining the useful life of an

intangible asset include

A. Legal, regulatory, or contractual

provisions.
B. The residual value of the
asset.
C. The entity's expected use of the intangible
asset.
D. The effects of obsolescence, competition, and technological
change.
E. All of the above choices are used in determining the useful life of
an intangible asset.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-06 Describe the procedures for conducting a goodwill impairment test.

37. Consolidated net income using the equity method for an acquisition
combination is computed as follows:

A. Parent company's income from its own operations plus the equity
from subsidiary's income recorded by the parent.
B. Parent's reported net
income.
C. Combined revenues less combined expenses less equity in
subsidiary's income less amortization of fair-value allocations in
excess of book value.
D. Parent's revenues less expenses for its own operations plus the
equity from subsidiary's income recorded by parent.
E. All of the
above.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
 AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
38. Perry Company acquires 100% of the stock of Hurley Corporation on
January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the consideration transferred in excess of book value

acquired at January 1, 2010.
 A. $15
0.
B. $70
0.
C. $2,20
0.
D. $55
0.
E. $2,90
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
39. Perry Company acquires 100% of the stock of Hurley Corporation on
January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute goodwill, if any, at January 1, 2010.

 A. $15
0.
B. $25
0.
C. $70
0.
D. $1,20
0.
E. $55
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
40. Perry Company acquires 100% of the stock of Hurley Corporation on
January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's inventory that would be reported in

a January 1, 2010, consolidated balance sheet.
 A. $80
0.
B. $10
0.
C. $90
0.
D. $15
0.
E. $0
.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
41. Perry Company acquires 100% of the stock of Hurley Corporation on
January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's buildings that would be reported in

a December 31, 2010, consolidated balance sheet.
 A. $1,56
0.
B. $1,26
0.
C. $1,44
0.
D. $1,16
0.
E. $1,14
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
42. Perry Company acquires 100% of the stock of Hurley Corporation on
January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's equipment that would be reported

in a December 31, 2010, consolidated balance sheet.
 A. $1,00
0.
B. $1,25
0.
C. $87
5.
D. $1,12
5.
E. $75
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
43. Perry Company acquires 100% of the stock of Hurley Corporation on
January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of total expenses reported in an income

statement for the year ended December 31, 2010, in order to
 recognize acquisition-date allocations of fair value and book value
differences,

A. $14
0.
B. $19
0.
C. $26
0.
D. $28
5.
E. $31
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
44. Perry Company acquires 100% of the stock of Hurley Corporation on
January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's long-term liabilities that would be

reported in a December 31, 2010, consolidated balance sheet.
 A. $1,80
0.
B. $1,70
0.
C. $1,72
5.
D. $1,67
5.
E. $3,50
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
45. Perry Company acquires 100% of the stock of Hurley Corporation on
January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's buildings that would be reported in

a December 31, 2011, consolidated balance sheet.
 A. $1,62
0.
B. $1,38
0.
C. $1,32
0.
D. $1,08
0.
E. $1,50
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
46. Perry Company acquires 100% of the stock of Hurley Corporation on
January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's equipment that would be reported

in a December 31, 2011, consolidated balance sheet.
 A. $0
.
B. $1,00
0.
C. $1,25
0.
D. $1,12
5.
E. $1,20
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
47. Perry Company acquires 100% of the stock of Hurley Corporation on
January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's land that would be reported in a

December 31, 2011, consolidated balance sheet.
 A. $90
0.
B. $1,30
0.
C. $40
0.
D. $1,45
0.
E. $2,20
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
48. Perry Company acquires 100% of the stock of Hurley Corporation on
January 1, 2010, for $3,800 cash. As of that date Hurley has the
following trial balance;

Any excess of consideration transferred over fair value of net assets

acquired is considered goodwill with an indefinite life. FIFO inventory
valuation method is used.

Compute the amount of Hurley's long-term liabilities that would be

reported in a December 31, 2011, consolidated balance sheet.
 A. $1,70
0.
B. $1,80
0.
C. $1,65
0.
D. $1,75
0.
E. $3,50
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
49. Kaye Company acquired 100% of Fiore Company on January 1, 2011.
Kaye paid $1,000 excess consideration over book value which is
being amortized at $20 per year. Fiore reported net income of $400 in
2011 and paid dividends of $100.

Assume the equity method is applied. How much will Kaye's income
increase or decrease as a result of Fiore's operations?

A. $400
increase.
B. $300
increase.
C. $380
increase.
D. $280
increase.
E. $480
increase.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
50. Kaye Company acquired 100% of Fiore Company on January 1, 2011.
Kaye paid $1,000 excess consideration over book value which is
being amortized at $20 per year. Fiore reported net income of $400 in
2011 and paid dividends of $100.

Assume the partial equity method is applied. How much will Kaye's
income increase or decrease as a result of Fiore's operations?

A. $400
increase.
B. $300
increase.
C. $380
increase.
D. $280
increase.
E. $480
increase.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
51. Kaye Company acquired 100% of Fiore Company on January 1, 2011.
Kaye paid $1,000 excess consideration over book value which is
being amortized at $20 per year. Fiore reported net income of $400 in
2011 and paid dividends of $100.

Assume the initial value method is applied. How much will Kaye's
income increase or decrease as a result of Fiore's operations?

A. $400
increase.
B. $300
increase.
C. $380
increase.
D. $100
increase.
E. $210
increase.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
52. Kaye Company acquired 100% of Fiore Company on January 1, 2011.
Kaye paid $1,000 excess consideration over book value which is
being amortized at $20 per year. Fiore reported net income of $400 in
2011 and paid dividends of $100.

Assume the partial equity method is used. In the years following

acquisition, what additional worksheet entry must be made for
consolidation purposes that is not required for the equity method?

A. Entry
A.
B. Entry
B.
C. Entry
C.
D. Entry
D.
E. Entry
E.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: c. The partial equity method.
53. Kaye Company acquired 100% of Fiore Company on January 1, 2011.
Kaye paid $1,000 excess consideration over book value which is
being amortized at $20 per year. Fiore reported net income of $400 in
2011 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. Entry
A.
B. Entry
B.
C. Entry
C.
D. Entry
D.
E. Entry
E.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: b. The initial value method.
54. Hoyt Corporation agreed to the following terms in order to acquire
the net assets of Brown Company on January 1, 2011:

(1.) To issue 400 shares of common stock ($10 par) with a fair value
of $45 per share.
(2.) To assume Brown's liabilities which have a fair value of $1,500.

On the date of acquisition, the consideration transferred for Hoyt's

acquisition of Brown would be

A. $18,00
0.
B. $16,50
0.
C. $20,00
0.
D. $18,50
0.
E. $19,50
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
55. Following are selected accounts for Green Corporation and Vega
Company as of December 31, 2013. Several of Green's accounts
have been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000,
its buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an
unrecorded trademark with a 16-year remaining life. There was no
goodwill associated with this investment.

Compute the book value of Vega at January 1, 2009.

A. $997,50
0.
B. $857,50
0.
C. $1,200,00
0.
 D. $1,600,00
0.
E. $827,50
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
56. Following are selected accounts for Green Corporation and Vega
Company as of December 31, 2013. Several of Green's accounts
have been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000,
its buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an
unrecorded trademark with a 16-year remaining life. There was no
goodwill associated with this investment.

Compute the December 31, 2013, consolidated revenues.

A. $1,400,00
0.
B. $800,00
0.
C. $500,00
0.
 D. $1,590,37
5.
E. $1,390,37
5.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
57. Following are selected accounts for Green Corporation and Vega
Company as of December 31, 2013. Several of Green's accounts
have been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000,
its buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an
unrecorded trademark with a 16-year remaining life. There was no
goodwill associated with this investment.

Compute the December 31, 2013, consolidated total expenses.

A. $620,00
0.
B. $280,00
0.
C. $900,00
0.
 D. $909,62
5.
E. $299,62
5.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
58. Following are selected accounts for Green Corporation and Vega
Company as of December 31, 2013. Several of Green's accounts
have been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000,
its buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an
unrecorded trademark with a 16-year remaining life. There was no
goodwill associated with this investment.

Compute the December 31, 2013, consolidated buildings.

A. $1,037,50
0.
B. $1,007,50
0.
C. $1,000,00
0.
 D. $1,022,50
0.
E. $1,012,50
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
59. Following are selected accounts for Green Corporation and Vega
Company as of December 31, 2013. Several of Green's accounts
have been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000,
its buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an
unrecorded trademark with a 16-year remaining life. There was no
goodwill associated with this investment.

Compute the December 31, 2013, consolidated equipment.

A. $800,00
0.
B. $808,00
0.
C. $840,00
0.
 D. $760,00
0.
E. $848,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
60. Following are selected accounts for Green Corporation and Vega
Company as of December 31, 2013. Several of Green's accounts
have been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000,
its buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an
unrecorded trademark with a 16-year remaining life. There was no
goodwill associated with this investment.

Compute the December 31, 2013, consolidated land.

A. $220,00
0.
B. $180,00
0.
C. $670,00
0.
 D. $630,00
0.
E. $450,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
61. Following are selected accounts for Green Corporation and Vega
Company as of December 31, 2013. Several of Green's accounts
have been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000,
its buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an
unrecorded trademark with a 16-year remaining life. There was no
goodwill associated with this investment.

Compute the December 31, 2013, consolidated trademark.

A. $50,00
0.
B. $46,87
5.
C. $0
.
 D. $34,37
5.
E. $37,50
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
62. Following are selected accounts for Green Corporation and Vega
Company as of December 31, 2013. Several of Green's accounts
have been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000,
its buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an
unrecorded trademark with a 16-year remaining life. There was no
goodwill associated with this investment.

Compute the December 31, 2013, consolidated common stock.

A. $450,00
0.
B. $530,00
0.
C. $555,00
0.
 D. $635,00
0.
E. $525,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
63. Following are selected accounts for Green Corporation and Vega
Company as of December 31, 2013. Several of Green's accounts
have been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000,
its buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an
unrecorded trademark with a 16-year remaining life. There was no
goodwill associated with this investment.

Compute the December 31, 2013, consolidated additional paid-in

capital.

A. $210,00
0.
B. $75,00
0.
C. $1,102,50
0.
 D. $942,50
0.
E. $525,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
64. Following are selected accounts for Green Corporation and Vega
Company as of December 31, 2013. Several of Green's accounts
have been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000,
its buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an
unrecorded trademark with a 16-year remaining life. There was no
goodwill associated with this investment.

Compute the December 31, 2013 consolidated retained earnings.

A. $1,645,37
5.
B. $1,350,00
0.
C. $1,565,37
5.
 D. $1,840,37
5.
E. $1,265,37
5.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
65. Following are selected accounts for Green Corporation and Vega
Company as of December 31, 2013. Several of Green's accounts
have been omitted.

Green acquired 100% of Vega on January 1, 2009, by issuing 10,500

shares of its $10 par value common stock with a fair value of $95 per
share. On January 1, 2009, Vega's land was undervalued by $40,000,
its buildings were overvalued by $30,000, and equipment was
undervalued by $80,000. The buildings have a 20-year life and the
equipment has a 10-year life. $50,000 was attributed to an
unrecorded trademark with a 16-year remaining life. There was no
goodwill associated with this investment.

Compute the equity in Vega's income to be included in Green's

consolidated income statement for 2013.

A. $500,00
0.
B. $300,00
0.
C. $190,37
5.
 D. $200,00
0.
E. $290,37
5.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.

66. One company acquires another company in a combination accounted

for as an acquisition. The acquiring company decides to apply the
initial value method in accounting for the combination. What is one
reason the acquiring company might have made this decision?

A. It is the only method allowed by the

SEC.
B. It is relatively easy to
apply.
C. It is the only internal reporting method allowed by generally
accepted accounting principles.
D. Operating results on the parent's financial records reflect
consolidated totals.
E. When the initial method is used, no worksheet entries are required
in the consolidation process.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
67. One company acquires another company in a combination accounted
for as an acquisition. The acquiring company decides to apply the
equity method in accounting for the combination. What is one reason
the acquiring company might have made this decision?

A. It is the only method allowed by the

SEC.
B. It is relatively easy to
apply.
C. It is the only internal reporting method allowed by generally
accepted accounting principles.
D. Operating results on the parent's financial records reflect
consolidated totals.
E. When the equity method is used, no worksheet entries are
required in the consolidation process.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.

68. When is a goodwill impairment loss recognized?

A. Annually on a systematic and rational

basis.
B. Never
.
C. If both the fair value of a reporting unit and its associated implied
goodwill fall below their respective carrying values.
D. If the fair value of a reporting unit falls below its original
acquisition price.
E. Whenever the fair value of the entity declines
significantly.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.
69. Which of the following will result in the recognition of an impairment
loss on goodwill?

A. Goodwill amortization is to be recognized annually on a systematic

and rational basis.
B. Both the fair value of a reporting unit and its associated implied
goodwill fall below their respective carrying values.
C. The fair value of the entity declines
significantly.
D. The fair value of a reporting unit falls below the original
consideration transferred for the acquisition.
E. The entity is investigated by the SEC and its reputation has been
severely damaged.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.
70. Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on
January 4, 2010, at an amount in excess of Kenneth's fair value. On
that date, Kenneth has equipment with a book value of $90,000 and
a fair value of $120,000 (10-year remaining life). Goehler has
equipment with a book value of $800,000 and a fair value of
$1,200,000 (10-year remaining life). On December 31, 2011, Goehler
has equipment with a book value of $975,000 but a fair value of
$1,350,000 and Kenneth has equipment with a book value of
$105,000 but a fair value of $125,000.

If Goehler applies the equity method in accounting for Kenneth, what

is the consolidated balance for the Equipment account as of
December 31, 2011?

A. $1,080,00
0.
B. $1,104,00
0.
C. $1,100,00
0.
D. $1,468,00
0.
E. $1,475,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
71. Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on
January 4, 2010, at an amount in excess of Kenneth's fair value. On
that date, Kenneth has equipment with a book value of $90,000 and
a fair value of $120,000 (10-year remaining life). Goehler has
equipment with a book value of $800,000 and a fair value of
$1,200,000 (10-year remaining life). On December 31, 2011, Goehler
has equipment with a book value of $975,000 but a fair value of
$1,350,000 and Kenneth has equipment with a book value of
$105,000 but a fair value of $125,000.

If Goehler applies the partial equity method in accounting for

Kenneth, what is the consolidated balance for the Equipment account
as of December 31, 2011?

A. $1,080,00
0.
B. $1,104,00
0.
C. $1,100,00
0.
D. $1,468,00
0.
E. $1,475,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: c. The partial equity method.
72. Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on
January 4, 2010, at an amount in excess of Kenneth's fair value. On
that date, Kenneth has equipment with a book value of $90,000 and
a fair value of $120,000 (10-year remaining life). Goehler has
equipment with a book value of $800,000 and a fair value of
$1,200,000 (10-year remaining life). On December 31, 2011, Goehler
has equipment with a book value of $975,000 but a fair value of
$1,350,000 and Kenneth has equipment with a book value of
$105,000 but a fair value of $125,000.

If Goehler applies the initial value method in accounting for Kenneth,

what is the consolidated balance for the Equipment account as of
December 31, 2011?

A. $1,080,00
0.
B. $1,104,00
0.
C. $1,100,00
0.
D. $1,468,00
0.
E. $1,475,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: b. The initial value method.
73. How is the fair value allocation of an intangible asset allocated to
expense when the asset has no legal, regulatory, contractual,
competitive, economic, or other factors that limit its life?

A. Equally over 20
years.
B. Equally over 40
years.
C. Equally over 20 years with an annual impairment
review.
D. No amortization, but annually reviewed for impairment and
adjusted accordingly.
E. No amortization over an indefinite
period time.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-06 Describe the procedures for conducting a goodwill impairment test.
74. Harrison, Inc. acquires 100% of the voting stock of Rhine Company on
January 1, 2010 for $400,000 cash. A contingent payment of $16,500
will be paid on April 15, 2011 if Rhine generates cash flows from
operations of $27,000 or more in the next year. Harrison estimates
that there is a 20% probability that Rhine will generate at least
$27,000 next year, and uses an interest rate of 5% to incorporate the
time value of money. The fair value of $16,500 at 5%, using a
probability weighted approach, is $3,142.

What will Harrison record as its Investment in Rhine on January 1,

2010?

A. $400,00
0.
B. $403,14
2.
C. $406,00
0.
D. $409,14
2.
E. $416,50
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to
a business acquisition.
75. Harrison, Inc. acquires 100% of the voting stock of Rhine Company on
January 1, 2010 for $400,000 cash. A contingent payment of $16,500
will be paid on April 15, 2011 if Rhine generates cash flows from
operations of $27,000 or more in the next year. Harrison estimates
that there is a 20% probability that Rhine will generate at least
$27,000 next year, and uses an interest rate of 5% to incorporate the
time value of money. The fair value of $16,500 at 5%, using a
probability weighted approach, is $3,142.

Assuming Rhine generates cash flow from operations of $27,200 in

2010, how will Harrison record the $16,500 payment of cash on April
15, 2011 in satisfaction of its contingent obligation?

A. Debit Contingent performance obligation $16,500, and Credit Cash

$16,500.
B. Debit Contingent performance obligation $3,142, debit Loss from
revaluation of contingent performance obligation $13,358, and
Credit Cash $16,500.
C. Debit Investment in Subsidiary and Credit Cash,
$16,500.
D. Debit Goodwill and Credit Cash,
$16,500.
E. No
entry.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to
a business acquisition.
76. Harrison, Inc. acquires 100% of the voting stock of Rhine Company on
January 1, 2010 for $400,000 cash. A contingent payment of $16,500
will be paid on April 15, 2011 if Rhine generates cash flows from
operations of $27,000 or more in the next year. Harrison estimates
that there is a 20% probability that Rhine will generate at least
$27,000 next year, and uses an interest rate of 5% to incorporate the
time value of money. The fair value of $16,500 at 5%, using a
probability weighted approach, is $3,142.

When recording consideration transferred for the acquisition of Rhine

on January 1, 2010, Harrison will record a contingent performance
obligation in the amount of:

A. $628.4
0
B. $2,671.
60
C. $3,142.0
0
D. $13,358.
00
E. $16,500.
00
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to
a business acquisition.
77. Beatty, Inc. acquires 100% of the voting stock of Gataux Company on
January 1, 2010 for $500,000 cash. A contingent payment of $12,000
will be paid on April 1, 2011 if Gataux generates cash flows from
operations of $26,500 or more in the next year. Beatty estimates that
there is a 30% probability that Gataux will generate at least $26,500
next year, and uses an interest rate of 4% to incorporate the time
value of money. The fair value of $12,000 at 4%, using a probability
weighted approach, is $3,461.

What will Beatty record as its Investment in Gataux on January 1,

2010?

A. $500,00
0.
B. $503,46
1.
C. $512,00
0.
D. $515,46
1.
E. $526,50
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to
a business acquisition.
78. Beatty, Inc. acquires 100% of the voting stock of Gataux Company on
January 1, 2010 for $500,000 cash. A contingent payment of $12,000
will be paid on April 1, 2011 if Gataux generates cash flows from
operations of $26,500 or more in the next year. Beatty estimates that
there is a 30% probability that Gataux will generate at least $26,500
next year, and uses an interest rate of 4% to incorporate the time
value of money. The fair value of $12,000 at 4%, using a probability
weighted approach, is $3,461.

Assuming Gataux generates cash flow from operations of $27,200 in

2010, how will Beatty record the $12,000 payment of cash on April 1,
2011 in satisfaction of its contingent obligation?

A. Debit Contingent performance obligation $3,461, debit Goodwill

$8,539, and Credit Cash $12,000.
B. Debit Contingent performance obligation $3,461, debit Loss from
revaluation of contingent performance obligation $8,539, and
Credit Cash $12,000.
C. Debit Goodwill and Credit Cash,
$12,000.
D. Debit Goodwill $27,200, credit Contingent performance obligation
$15,200, and Credit Cash $12,000.
E. No
entry.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to
a business acquisition.
79. Beatty, Inc. acquires 100% of the voting stock of Gataux Company on
January 1, 2010 for $500,000 cash. A contingent payment of $12,000
will be paid on April 1, 2011 if Gataux generates cash flows from
operations of $26,500 or more in the next year. Beatty estimates that
there is a 30% probability that Gataux will generate at least $26,500
next year, and uses an interest rate of 4% to incorporate the time
value of money. The fair value of $12,000 at 4%, using a probability
weighted approach, is $3,461.

Beatty, Inc. acquires 100% of the voting stock of Gataux Company on

January 1, 2010 for $500,000 cash. A contingent payment of $12,000
will be paid on April 1, 2011 if Gataux generates cash flows from
operations of $26,500 or more in the next year. Beatty estimates that
there is a 30% probability that Gataux will generate at least $26,500
next year, and uses an interest rate of 4% to incorporate the time
value of money. The fair value of $12,000 at 4%, using a probability
weighted approach, is $3,461.

When recording consideration transferred for the acquisition of

Gataux on January 1, 2010, Beatty will record a contingent
performance obligation in the amount of:

A. $692.2
0
B. $3,040.
00
C. $3,461.
00
D. $12,000.
00
E. $15,200.
00
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to
a business acquisition.
80. Prince Company acquires Duchess, Inc. on January 1, 2009. The
consideration transferred exceeds the fair value of Duchess' net
assets. On that date, Prince has a building with a book value of
$1,200,000 and a fair value of $1,500,000. Duchess has a building
with a book value of $400,000 and fair value of $500,000.

If push-down accounting is used, what amounts in the Building

account appear in Duchess' separate balance sheet and in the
consolidated balance sheet immediately after acquisition?

A. $400,000 and
$1,600,000.
B. $500,000 and
$1,700,000.
C. $400,000 and
$1,700,000.
D. $500,000 and
$2,000,000.
E. $500,000 and
$1,600,000.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is
appropriate.
81. Prince Company acquires Duchess, Inc. on January 1, 2009. The
consideration transferred exceeds the fair value of Duchess' net
assets. On that date, Prince has a building with a book value of
$1,200,000 and a fair value of $1,500,000. Duchess has a building
with a book value of $400,000 and fair value of $500,000.

If push-down accounting is not used, what amounts in the Building

account appear on Duchess' separate balance sheet and on the
consolidated balance sheet immediately after acquisition?

A. $400,000 and
$1,600,000.
B. $500,000 and
$1,700,000.
C. $400,000 and
$1,700,000.
D. $500,000 and
$2,000,000.
E. $500,000 and
$1,600,000.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is
appropriate.
82. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

If Watkins pays $450,000 in cash for Glen, what amount would be

represented as the subsidiary's Building in a consolidation at
December 31, 2012, assuming the book value of the building at that
date is still $200,000?

A. $200,00
0.
B. $285,00
0.
C. $290,00
0.
D. $295,00
0.
E. $300,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
83. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

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, 2012, assuming the book value of the building at that
date is still $200,000?

A. $200,00
0.
B. $285,00
0.
C. $260,00
0.
D. $268,00
0.
E. $300,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
84. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

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, 2012, assuming the book value of the equipment at
that date is still $80,000?

A. $70,00
0.
B. $73,50
0.
C. $75,00
0.
D. $76,50
0.
E. $80,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
85. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

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, 2012?

A. $(5,000
.)
B. $80,00
0.
C. $75,00
0.
D. $73,50
0.
E. $(3,500
.)
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
86. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

If Watkins pays $300,000 in cash for Glen, at what amount would the
subsidiary's Building be represented in a January 2, 2010
consolidation?

A. $200,00
0.
B. $225,00
0.
C. $273,00
0.
D. $279,00
0.
E. $300,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
87. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

If Watkins pays $450,000 in cash for Glen, at what amount would

Glen's Inventory acquired be represented in a December 31, 2010
consolidated balance sheet?

A. $40,00
0.
B. $50,00
0.
C. $0
.
D. $10,00
0.
E. $90,00
0.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
88. Watkins, Inc. acquires all of the outstanding stock of Glen Corporation
on January 1, 2010. At that date, Glen owns only three assets and has
no liabilities:

If Watkins pays $450,000 in cash for Glen, and Glen earns $50,000 in
net income and pays $20,000 in dividends during 2010, what amount
would be reflected in consolidated net income for 2010 as a result of
the acquisition?

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.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
89. 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.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.
90. 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
.
AACSB: Reflective thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.

Essay Questions

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

The initial value method is the easiest to use.

AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
92. 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?

The equity method gives the most accurate portrayal of the results
for the combined entity.

AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.

93. 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?

The balance of the investment account is increased for the

subsidiary's net income. It is decreased for subsidiary dividends and
losses. The amortization of excess fair value allocations does not
affect the account balance.

AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
94. From which methods can a parent choose for its internal
recordkeeping related to the operations of a subsidiary?

The parent can choose from among the initial value method, equity
method, and partial equity method.

AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.

95. What accounting method requires a subsidiary to record acquisition

fair value allocations and the amortization of allocations in its internal
accounting records?

The appropriate method is termed push-down accounting.

AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is
appropriate.
96. 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?

The partial equity method is a compromise between the initial value

method and the equity method. It provides some of the advantages
of the equity method but is easier to use. Under the partial equity
method, the balance in the investment account is increased by the
accrual of the subsidiary's income and decreased when the
subsidiary pays dividends. The method is simpler than the equity
method because amortization of excess fair value allocations is not
done.

AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.

97. What advantages might push-down accounting offer for internal

reporting?

Push-down accounting requires the subsidiary to record acquisition

fair value allocations and amortizations in its accounting records. One
advantage that the method offers to internal reporting is that it
simplifies the consolidation process. More important, it provides
better information for internal evaluation.

AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is
appropriate.
98. What is the basic objective of all consolidations?

The basic objective of all consolidations is to combine asset, liability,

revenue, expense, and stockholders' equity accounts in a manner
consistent with the concepts of the acquisition method to reflect
substance over form in financial reporting for consolidations. When a
parent has control (substance) over a subsidiary and separate
incorporation is maintained (form), the consolidated financial
statements will reflect results as if the multiple entities were one
entity.

AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.

99. Yules Co. acquired Noel Co. in an acquisition transaction. 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.

The initial balance in the investment account would be the

acquisition value implied by the fair value of consideration
transferred. This would not include consideration paid for costs to
effect the combination. After the acquisition, the balance in the
account is increased by the parent's accrual of the subsidiary's
income and decreased by the dividends paid by the subsidiary.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
100. 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?

A cash-flow performance contingency is shown as a contingent

performance obligation which is in the liability section of the
consolidated balance sheet. A market-price performance contingency
to be paid in stock is shown as additional paid-in capital - contingent
equity outstanding which is in the stockholders' equity section of the
consolidated balance sheet.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Analyze
Difficulty: 2 Medium
Learning Objective: 03-07 Understand the accounting and reporting for contingent consideration subsequent to
a business acquisition.
101. 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?

Since the equity method has been applied by Avery, the $198,984 is
composed of four items:

(a.) The acquisition value of consideration transferred by the parent;

(b.) The annual accruals made by Avery to recognize income as it is
earned by the subsidiary;
(c.) The reductions that are created by the subsidiary's payment of
dividends;
(d.) The periodic amortization recognized by Avery in connection with
the excess fair value allocations identified with its acquisition.

AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.

102. 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?

The loan represents an intra-entity payable for Hans and receivable

for Dutch, and each receivable and payable would be eliminated in
preparing a consolidated balance sheet.

AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 03-06 Describe the procedures for conducting a goodwill impairment test.
103. An acquisition transaction 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.

The $90,000 attributed to goodwill is reported at its original amount

unless a portion of goodwill is impaired or a unit of the business
where goodwill resides is sold.

AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-05 Discuss the rationale for the goodwill impairment testing approach.

104. Why is push-down accounting a popular internal reporting

technique?

Push-down accounting has become popular for the parent's internal

reporting purposes for two reasons. First, this method simplifies the
consolidation process each year. If acquisition value allocations and
subsequent amortization are recorded by the subsidiary, they do not
need to be repeated each year on a consolidation worksheet. Second,
recording of amortization by the subsidiary enables that company's
information to provide a good representation of the impact that the
acquisition has on the earnings of the business combination. For
example, if the subsidiary earns $100,000 each year but annual
amortization is $80,000, the acquisition is only adding $20,000 to the
income of the combination each year rather than the $100,000 that
is reported by the subsidiary unless push-down accounting is used.

AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-08 Understand in general the requirements of pushdown accounting and when its use is
appropriate.
Short Answer Questions

105. On January 1, 2010, Jumper Co. acquired all of the common stock of
Cable Corp. for $540,000. Annual amortization associated with the
purchase amounted to $1,800. During 2010, Cable earned net
income of $54,000 and paid dividends of $24,000. Cable's net
income and dividends for 2011 were $86,000 and $24,000,
respectively.

Required:

Assuming that Jumper decided to use the partial equity method,

prepare a schedule to show the balance in the investment account at
the end of 2011.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: c. The partial equity method.
106. Hanson Co. acquired all of the common stock of Roberts Inc. on
January 1, 2010, transferring consideration in an amount slightly
more than the fair value of Roberts' net assets. At that time, Roberts
had buildings with a twenty-year useful life, a book value of
$600,000, and a fair value of $696,000. On December 31, 2011,
Roberts had buildings with a book value of $570,000 and a fair value
of $648,000. On that date, Hanson had buildings with a book value of
$1,878,000 and a fair value of $2,160,000.

Required:

What amount should be shown for buildings on the consolidated

balance sheet dated December 31, 2011?

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
107. Carnes Co. decided to use the partial equity method to account for its
investment in Domino Corp. An unamortized trademark associated
with the acquisition was $30,000, and Carnes decided to amortize the
trademark over ten years. For 2011, Carnes' Equity in Subsidiary
Earnings was $78,000.

Required:

What balance would have been in the Equity in Subsidiary Earnings

account if Carnes had used the equity method?

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: c. The partial equity method.
108. Fesler Inc. acquired all of the outstanding common stock of Pickett
Company on January 1, 2010. Annual amortization of $22,000
resulted from this transaction. On the date of the acquisition, Fesler
reported retained earnings of $520,000 while Pickett reported a
$240,000 balance for retained earnings. Fesler reported net income
of $100,000 in 2010 and $68,000 in 2011, and paid dividends of
$25,000 in dividends each year. Pickett reported net income of
$24,000 in 2010 and $36,000 in 2011, and paid dividends of $10,000
in dividends each year.
Assume that Fesler's reported net income includes Equity in
Subsidiary Income.

If the parent's net income reflected use of the equity method, what
were the consolidated retained earnings on December 31, 2011?

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
109. Fesler Inc. acquired all of the outstanding common stock of Pickett
Company on January 1, 2010. Annual amortization of $22,000
resulted from this transaction. On the date of the acquisition, Fesler
reported retained earnings of $520,000 while Pickett reported a
$240,000 balance for retained earnings. Fesler reported net income
of $100,000 in 2010 and $68,000 in 2011, and paid dividends of
$25,000 in dividends each year. Pickett reported net income of
$24,000 in 2010 and $36,000 in 2011, and paid dividends of $10,000
in dividends each year.
Assume that Fesler's reported net income includes Equity in
Subsidiary Income.

If the parent's net income reflected use of the partial equity method,
what were the consolidated retained earnings on December 31,
2011?

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: c. The partial equity method.
110. Fesler Inc. acquired all of the outstanding common stock of Pickett
Company on January 1, 2010. Annual amortization of $22,000
resulted from this transaction. On the date of the acquisition, Fesler
reported retained earnings of $520,000 while Pickett reported a
$240,000 balance for retained earnings. Fesler reported net income
of $100,000 in 2010 and $68,000 in 2011, and paid dividends of
$25,000 in dividends each year. Pickett reported net income of
$24,000 in 2010 and $36,000 in 2011, and paid dividends of $10,000
in dividends each year.
Assume that Fesler's reported net income includes Equity in
Subsidiary Income.

If the parent's net income reflected use of the initial value method,
what were the consolidated retained earnings on December 31,
2011?

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: b. The initial value method.
111. Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1,
2010, by issuing 11,000 shares of $1 par value common stock.
Jaynes' shares had a $17 per share fair value. On that date, Aaron
reported a net book value of $120,000. However, its equipment (with
a five-year remaining life) was undervalued by $6,000 in the
company's accounting records. Any excess of consideration
transferred over fair value of assets and liabilities is assigned to an
unrecorded patent to be amortized over ten years.

What balance would Jaynes' Investment in Aaron Co. account have

shown on December 31, 2010, when the equity method was applied
for this acquisition?

An allocation of the acquisition value (based on the fair value of the

shares issued) must first be made.
 AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
112. Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1,
2010, by issuing 11,000 shares of $1 par value common stock.
Jaynes' shares had a $17 per share fair value. On that date, Aaron
reported a net book value of $120,000. However, its equipment (with
a five-year remaining life) was undervalued by $6,000 in the
company's accounting records. Any excess of consideration
transferred over fair value of assets and liabilities is assigned to an
unrecorded patent to be amortized over ten years.

What was consolidated net income for the year ended December 31,
2011?

AACSB: Analytic
 AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
113. Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1,
2010, by issuing 11,000 shares of $1 par value common stock.
Jaynes' shares had a $17 per share fair value. On that date, Aaron
reported a net book value of $120,000. However, its equipment (with
a five-year remaining life) was undervalued by $6,000 in the
company's accounting records. Any excess of consideration
transferred over fair value of assets and liabilities is assigned to an
unrecorded patent to be amortized over ten years.

What was consolidated equipment as of December 31, 2011?

AACSB: Analytic
AICPA BB: Critical Thinking
 AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
114. Jaynes Inc. acquired all of Aaron Co.'s common stock on January 1,
2010, by issuing 11,000 shares of $1 par value common stock.
Jaynes' shares had a $17 per share fair value. On that date, Aaron
reported a net book value of $120,000. However, its equipment (with
a five-year remaining life) was undervalued by $6,000 in the
company's accounting records. Any excess of consideration
transferred over fair value of assets and liabilities is assigned to an
unrecorded patent to be amortized over ten years.

What was the total for consolidated patents as of December 31,

2011?

AACSB: Analytic
AICPA BB: Critical Thinking
 AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
115. Utah Inc. acquired all of the outstanding common stock of Trimmer
Corp. on January 1, 2009. At that date, Trimmer owned only three
assets and had no liabilities:

If Utah paid $300,000 in cash for Trimmer, what allocation should

have been assigned to the subsidiary's Building account and its
Equipment account in a December 31, 2011 consolidation?

Since Utah paid more than the $288,000 fair value of Trimmer's net
assets, all allocations are based on fair value with the excess $12,000
assigned to goodwill.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
 Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
116. Matthews Co. acquired all of the common stock of Jackson Co. on
January 1, 2010. As of that date, Jackson had the following trial
balance:

During 2010, Jackson reported net income of $96,000 while paying

dividends of $12,000. During 2011, Jackson reported net income of
$132,000 while paying dividends of $36,000.
Assume that Matthews Co. acquired the common stock of Jackson Co.
for $588,000 in cash. As of January 1, 2010, Jackson's land had a fair
value of $102,000, its buildings were valued at $188,000, and its
equipment was appraised at $216,000. Any excess of consideration
transferred over fair value of assets and liabilities acquired is due to
an unamortized patent to be amortized over 10 years.
Matthews decided to use the equity method for this investment.

Required:

(A.) Prepare consolidation worksheet entries for December 31, 2010.

(B.) Prepare consolidation worksheet entries for December 31, 2011.
 AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
117. On January 1, 2009, Rand Corp. issued shares of its common stock to
acquire all of the outstanding common stock of Spaulding Inc.
Spaulding's book value was only $140,000 at the time, but Rand
issued 12,000 shares having a par value of $1 per share and a fair
value of $20 per share. Rand was willing to convey these shares
because it felt that buildings (ten-year life) were undervalued on
Spaulding's records by $60,000 while equipment (five-year life) was
undervalued by $25,000. Any consideration transferred over fair
value of identified net assets acquired is assigned to goodwill.
Following are the individual financial records for these two companies
for the year ended December 31, 2012.

Required:

Prepare a consolidation worksheet for this business combination.

 Consolidation Worksheet for Rand and Spaulding:

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method.
118. Pritchett Company recently acquired three businesses, recognizing
goodwill in each acquisition. Destin has allocated its acquired
goodwill to its three reporting units: Apple, Banana, and Carrot.
Pritchett provides the following information in performing the 2011
annual review for impairment:

Which of Pritchett's reporting units require both steps to test for

goodwill impairment?

Goodwill Impairment Test—Step 1

Therefore, the Apple and the Carrot reporting units require

both steps to test for goodwill impairment.

AACSB: Analytic
 AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-06 Describe the procedures for conducting a goodwill impairment test.
119. Pritchett Company recently acquired three businesses, recognizing
goodwill in each acquisition. Destin has allocated its acquired
goodwill to its three reporting units: Apple, Banana, and Carrot.
Pritchett provides the following information in performing the 2011
annual review for impairment:

How much goodwill impairment should Pritchett report for 2011?

Goodwill Impairment Test—Step 2 (Apple and Carrot only)

Total impairment loss $5,000 + $75,000 = $80,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 03-06 Describe the procedures for conducting a goodwill impairment test.
120. On 4/1/09, Sey Mold Corporation acquired 100% of DotDot.Com for
$2,000,000 cash. On the date of acquisition, DotDot's net book value
was $900,000. DotDot's assets included land that was undervalued
by $300,000, a building that was undervalued by $400,000, and
equipment that was overvalued by $50,000. The building had a
remaining useful life of 8 years and the equipment had a remaining
useful life of 4 years. Any excess fair value over consideration
transferred is allocated to an undervalued patent and is amortized
over 5 years.

Determine the amortization expense related to the combination at

the year-end date of 12/31/09.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
121. On 4/1/09, Sey Mold Corporation acquired 100% of DotDot.Com for
$2,000,000 cash. On the date of acquisition, DotDot's net book value
was $900,000. DotDot's assets included land that was undervalued
by $300,000, a building that was undervalued by $400,000, and
equipment that was overvalued by $50,000. The building had a
remaining useful life of 8 years and the equipment had a remaining
useful life of 4 years. Any excess fair value over consideration
transferred is allocated to an undervalued patent and is amortized
over 5 years.

Determine the amortization expense related to the combination at

the year-end date of 12/31/13.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
122. On 4/1/09, Sey Mold Corporation acquired 100% of DotDot.Com for
$2,000,000 cash. On the date of acquisition, DotDot's net book value
was $900,000. DotDot's assets included land that was undervalued
by $300,000, a building that was undervalued by $400,000, and
equipment that was overvalued by $50,000. The building had a
remaining useful life of 8 years and the equipment had a remaining
useful life of 4 years. Any excess fair value over consideration
transferred is allocated to an undervalued patent and is amortized
over 5 years.

Determine the amortization expense related to the consolidation at

the year-end date of 12/31/19.

By 2019, all of the fair value adjustments and the patent will have
been fully amortized. The amortization expense for 2019 related to
the combination will be $0.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 03-01 Recognize the complexities in preparing consolidated financial reports that emerge
from the passage of time.
Learning Objective: 03-03 Understand that a parent's internal accounting method for its subsidiary investments
has no effect on the resulting consolidated financial statements.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.
123. For each of the following situations, select the best answer that
applies to consolidating financial information subsequent to the
acquisition date:

(A) Initial value method.

(B) Partial equity method.
(C) Equity method.
(D) Initial value method and partial equity method but not equity
method.
(E) Partial equity method and equity method but not initial value
method.
(F) Initial value method, partial equity method, and equity method.

_____1. Method(s) available to the parent for internal record-keeping.

_____2. Easiest internal record-keeping method to apply.
_____3. Income of the subsidiary is recorded by the parent when
earned.
_____4. Designed to create a parallel between the parent's
investment accounts and changes in the underlying equity of the
acquired company.
_____5. For years subsequent to acquisition, requires the *C entry.
_____6. Uses the cash basis for income recognition.
_____7. Investment account remains at initially recorded amount.
_____8. Dividends received by the parent from the subsidiary reduce
the parent's investment account.
_____9. Often referred to in accounting as a single-line consolidation.
_____10. Increases the investment account for subsidiary earnings,
but does not decrease the subsidiary account for equity adjustments
such as amortizations.

(1) F; (2) A; (3) E; (4) C; (5) D; (6) A; (7) A; (8) E; (9) C; (10) B

AACSB: Reflective thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 03-02 Identify and describe the various methods available to a parent company in order to
maintain its investment in subsidiary account in its internal records.
Learning Objective: 03-04 Prepare consolidated financial statements subsequent to acquisition when the parent
has applied in its internal records: a. The equity method; b. The initial value method; c. The partial equity
method.